<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 5, 1994
REGISTRATION NO. 33-_____
CIK #910835
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
REGISTRATION STATEMENT
ON
FORM S-6
-----------------
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
A. EXACT NAME OF TRUST:
B. NAME OF DEPOSITOR:
Kemper Defined Funds Series 18
KEMPER SECURITIES, INC.
C. COMPLETE ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES:
KEMPER UNIT INVESTMENT TRUSTS
77 West Wacker Drive, 5th Floor
Chicago, Illinois 60601
D. NAME AND COMPLETE ADDRESS OF AGENT FOR SERVICE:
Copy to:
C. PERRY MOORE MARK J. KNEEDY
Kemper Unit Investment Trusts c/o Chapman and Cutler
77 West Wacker Drive, 5th Floor 111 West Monroe Street
Chicago, Illinois 60601 Chicago, Illinois 60603
CALCULATION OF REGISTRATION FEE
Title and amount of Proposed maximum Amount of
securities being registered aggregate offering registration fee
price
Indefinite $500
Series 18 An indefinite number of
Units of Beneficial Interest
pursuant to Rule 24f-2 under
the Investment Compant Act of 1940
- --------------------------------------------------------------------------------
E. APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC:
As soon as practicable after the effective date of the Registration Statement.
<PAGE>
KEMPER DEFINED FUNDS SERIES 18
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<TABLE>
<CAPTION>
CROSS-REFERENCE SHEET
(FORM N-8B-2 ITEMS REQUIRED BY INSTRUCTIONS AS
TO THE PROSPECTUS IN FORM S-6)
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
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I. ORGANIZATION AND GENERAL INFORMATION
<S> <C>
1. (a) Name of trust..................................... }Prospectus front cover
(b) Title of securities issued..}Essential Information
2. Name and address of each depositor...................... }Administration of the Trusts
3. Name and address of trustee............................. } *
4. Name and address of principal underwriters.............. }Underwriting
5. State of organization of trust.......................... }The Trust Funds
6. Execution and termination of trust
agreement............................................ }The Trust Funds;
}Administration of the Trusts
7. Changes of name........................................ }The Trust Funds
8. Fiscal year............................................ } *
9. Litigation............................................. } *
II. GENERAL DESCRIPTION OF THE TRUST AND
SECURITIES OF THE TRUST
10. (a) Registered or bearer securities.................. }Unitholders
(b) Cumulative or distributive securities............ }The Trust Funds
(c) Redemption....................................... }Redemption
(d) Conversion, transfer, etc. ...................... }Unitholders; Market for Units
(e) Periodic payment plan............................ } *
(f) Voting rights.................................... }Unitholders
}Investment Supervision;
(g) Notice of certificateholders..................... }Administration of the Trusts;
}Unitholders
(h) Consents required................................ }Unitholders; Administration
}of the Trusts
(i) Other provisions................................. }Federal Tax Status; Insurance
}on the Portfolios of the
}Insured Trust Funds
11. Type of securities comprising units.................... }The Trust Funds; Portfolios
12. Certain information regarding periodic
</TABLE>
-I-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
payment certificates.............................. } *
13. (a) Load, fees, expenses, etc...................... }Interest, Estimated Long-Term
............................................... }Return
}and Estimated Current
}Return; Expenses of the
}Trust
(b) Certain information regarding periodic
payment certificates.......................... } *
(c) Certain percentages............................ }Essential Information; Public
}Offering of Units; Insurance
}on the Portfolios of the
}Insured Trust Funds
(d) Certain other fees, etc. payable
by holders.................................... }Unitholders
(e) Certain profits receivable by depositor,
principal, underwriters, writers,............. }Expenses of the Trusts;
trustee or affiliated persons................. }Public Offering of Units
(f) Ratio of annual charges to income.............. } *
}The Trust Funds;
14. Issuance of trust's securities..................... }Unitholders
15. Receipt and handling of payments
from purchasers................................... } *
16. Acquisition and disposition of underlying
securities........................................ }The Trust Funds; Portfolios;
}Investment Supervision
}Market for Units;
17. Withdrawal or redemption........................... }Redemption; Public Offering
}of Units
18. (a) Receipt, custody and disposition
of income.................................... }Unitholders
(b) Reinvestment of distributions................. }Distribution Reinvestment
(c) Reserves or special funds..................... }Expenses of the Trusts
(d) Schedule of distributions..................... } *
}Unitholders;
19. Records, accounts and reports...................... }Redemption; Administration
}of the Trusts
20. Certain miscellaneous provisions of trust agreement
(a) Amendment..................................... }Administration of the Trusts
(b) Termination................................... } *
(c) and (d) Trustee, removal and successor........ }Administration of the Trusts
(e) and (f) Depositor, removal and
successor.................................... }Administration of the Trusts
21. Loans to security holders.......................... } *
22. Limitations on liability........................... }Administration of the Trusts
23. Bonding arrangements............................... } *
</TABLE>
-II-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
24. Other material provisions of trust
agreement......................................... } *
III. ORGANIZATION, PERSONNEL AND
AFFILIATED PERSONS OF DEPOSITOR
25. Organization of depositor.......................... }Administration of the Trusts
26. Fees received by depositor......................... }See Items 13(a) and 13(e)
27. Business of depositor.............................. }Administration of the Trusts
28. Certain information as to officials and
affiliated persons of depositor................... }Administration of the Trusts
29. Voting securities of depositor..................... } *
}Administration of the Trusts
30. Persons controlling depositor...................... } *
31. Payment by depositor for certain services
rendered to trust................................ } *
32. Payment by depositor for certain other
services rendered to trust........................ } *
33. Remuneration of employees of depositor............. }
for certain services rendered to trust............ } *
34. Remuneration of other persons for certain.......... }
services rendered to trust........................ } *
IV. DISTRIBUTION AND REDEMPTION
35. Distribution of Trust's securities
by states........................................ }Public Offering of Units
36. Suspension of sales of trust's securities.......... } *
37. Revocation of authority to distribute.............. } *
38. (a) Method of Distribution........................ }Public Offering of Units;
(b) Underwriting Agreements....................... }Market for Units;
(c) Selling Agreements............................ }Public Offering of Units
39. (a) Organization of principal underwriters........ }Administration of the Trusts
(b) N.A.S.D. membership of principal
underwriters................................. } *
40. Certain fees received by principal
underwriters...................................... }See Items 13(a) and 13(e)
41. (a) Business of principal underwriters............ }Administration of the Trusts
(b) Branch offices of principal }
underwriters................................. } *
(c) Salesmen of principal underwriters.......... } *
42. Ownership of trust's securities by }
certain persons................................... } *
43. Certain brokerage commissions received by
</TABLE>
-III-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
principal underwriters........................... }Public Offering of Units
44. (a) Method of valuation........................... }Public Offering of Units
(b) Schedule as to offering price................. } *
(c) Variation in offering price to
certain persons.............................. }Public Offering of Units
45. Suspension of redemption rights.................... }Redemption
}Redemption; Market for
46. (a) Redemption valuation.......................... }Units; Public Offering of
}Units
(b) Schedule as to redemption price............... } *
}Market for Units;
47. Maintenance of position in underlying.............. }Public Offering of Units;
}Redemption
V. INFORMATION CONCERNING THE TRUSTEE
OR CUSTODIAN
48. Organization and regulation of trustee............. }Administration of the Trusts
49. Fees and expenses of trustee....................... }Expenses of the Trusts
50. Trustee's lien..................................... } *
VI. INFORMATION CONCERNING INSURANCE OF
HOLDERS OF SECURITIES
51. Insurance of holders of trust's
securities........................................ }Cover Page; Expenses of the
}Trusts; Insurance on the
}Portfolios of the Insured Trust
}Funds
VII. POLICY OF REGISTRANT
52. (a) Provisions of trust agreement with
respect to selection or elimination.......... }The Trust Funds; Portfolios;
of underlying securities..................... }Investment Supervision
(b) Transactions involving elimination of
underlying securities....................... } *
(c) Policy regarding substitution or elimination
of underlying securities.................... }Investment Supervision
(d) Fundamental policy not otherwise
covered...................................... } *
}Essential Information;
53. Tax status of Trust................................ }Portfolios
}Federal Tax Status
</TABLE>
-IV-
<PAGE>
<TABLE>
<CAPTION>
VIII. FINANCIAL AND STATISTICAL INFORMATION
<S> <C>
54. Trust's securities during last ten years........... } *
?55. } *
?56. Certain information regarding periodic } *
?57. payment certificates.............................. } *
?58. } *
59. Financial statements (Instruction 1(c)
to Form S-6)...................................... } *
</TABLE>
-V-
<PAGE>
Preliminary Prospectus Dated April 5, 1994
Kemper Defined Funds Series 18
(A Unit Investment Trust)
The attached final Prospectus for a prior Series of the Fund is hereby used
as a preliminary Prospectus for the above stated Series. The narrative
information and structure of the attached final Prospectus will be substantially
the same as that of the final Prospectus for this Series. Information with
respect to pricing, the number of Units, dates and summary information regarding
the characteristics of securities to be deposited in this Series is not now
available and will be different since each Series has a unique Portfolio.
Accordingly the information contained herein with regard to the previous Series
should be considered as being included for informational purposes only. Ratings
of the securities in this Series are expected to be comparable to those of the
securities deposited in the previous Series. However, the Estimated Current
Return for this Series will depend on the interest rates and offering prices of
the securities in this Series and may vary materially from that of the previous
Series.
A registration statement relating to the units of this Series will be filed
with the Securities and Exchange Commission but has not yet become effective.
Information contained herein is subject to completion or amendment. Such Units
may not be sold nor may offer to buy be accepted prior to the time the
registration statement becomes effective. This Prospectus shall not constitute
an offer to sell or the solicitation of an offer to buy nor shall there be any
sale of the Units in any state in which such offer, solicitation or sale would
be unlawful prior to registration or qualification under the securities laws of
any such state.
<PAGE>
KEMPER DEFINED FUNDS SERIES 16
(TAX-EXEMPT PORTFOLIO)
Insured National Series 9 (the "Insured National Series") was formed for the
purpose of gaining interest income exempt from Federal income taxes while
conserving capital and diversifying risks by investing in an insured, fixed
portfolio consisting of obligations issued by or on behalf of states of the
United States or counties, municipalities, authorities or political
subdivisions thereof. The Insured National Series is a laddered portfolio with
maturities ranging between 1998 and 2000.
The Insured Ohio Series 5 (the "Insured State Trust") was formed for the
purpose of gaining interest income free from Federal and State income taxes
and, where applicable, local income taxes and/or property taxes while
conserving capital and diversifying risks by investing in an insured, fixed
portfolio consisting of obligations issued by or on behalf of the State for
which such Trust Fund is named or counties, municipalities, authorities or
political subdivisions thereof. The Insured Ohio Series is a laddered
portfolio with maturities ranging between 1998 and 2002.
Units of the Trust are not deposits or obligations of, or guaranteed by, any
bank, and Units are not federally insured or otherwise protected by the
Federal Deposit Insurance Corporation and involve investment risk including
loss of principal.
Insurance guaranteeing the scheduled payment of principal and interest on all
of the Municipal Bonds in the portfolio of each Insured Trust has been
obtained directly by the issuer or the Sponsor from Municipal Bond Investors
Assurance Corporation or other insurers. See "Insurance on the Portfolios of
the Insured Trust Funds" on page A-9 and "Portfolios." Insurance obtained by a
Municipal Bond issuer is effective so long as such Bonds are outstanding. THE
INSURANCE DOES NOT RELATE TO THE UNITS OF THE INSURED TRUSTS OFFERED HEREBY OR
TO THEIR MARKET VALUE. As a result of such insurance, the Units of the Insured
Trusts have received a rating of "Aaa" by Moody's Investors Service, Inc. See
"Insurance on the Portfolios of the Insured Trust Funds." No representation is
made as to any insurer's ability to meet its commitments.
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SPONSOR: KEMPER UNIT INVESTMENT TRUSTS
a service of Kemper Securities, Inc.
- ------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The investor is advised to read and retain this Prospectus for future
reference.
THE DATE OF THIS PROSPECTUS IS MARCH 9, 1994.
<PAGE>
SUMMARY
PUBLIC OFFERING PRICE. The Public Offering Price per Unit of a Trust Fund
during the initial offering period is equal to a pro rata share of the
offering prices of the Municipal Bonds in such Trust Fund plus or minus a pro
rata share of (a) cash, if any, in the Principal Account held or owned by such
Trust Fund, (b) Purchased Interest and (c) Daily Accrued Interest plus that
sales charge indicated under "Essential Information." The secondary market
Public Offering Price per Unit will be based upon a pro rata share of the bid
prices of the Municipal Bonds in each Trust Fund plus or minus a pro rata
share of (a) cash, if any, in the Principal Account held or owned by such
Trust Fund, (b) Purchased Interest and (c) Daily Accrued Interest plus the
applicable sales charge. For sales charges in the secondary market, see
"Public Offering of Units--Public Offering Price." The sales charge is reduced
on a graduated scale for sales involving at least $100,000 or 10,000 Units and
will be applied on whichever basis is more favorable to the investor. The
minimum purchase for each Trust is $1,000.
INTEREST AND PRINCIPAL DISTRIBUTIONS. Distributions of the estimated annual
interest income to be received by each Trust Fund, after deduction of
estimated expenses, will be made monthly. See "Essential Information."
Distributions of funds, if any, in the Principal Account will be made as
provided in "Unitholders--Distributions to Unitholders."
REINVESTMENT. Each Unitholder of a Trust Fund offered herein may elect to have
distributions of principal or interest or both automatically invested without
charge in shares of certain mutual funds sponsored by Kemper Financial
Services, Inc. See "Distribution Reinvestment."
ESTIMATED LONG-TERM RETURN AND ESTIMATED CURRENT RETURN. As of the opening of
business on the Date of Deposit, the Estimated Long-Term Return and the
Estimated Current Return, if applicable, for each Trust were as set forth in
"Essential Information." The Estimated Current Return is calculated by
dividing the estimated net annual interest income per Unit by the Public
Offering Price. The estimated net annual interest income per Unit will vary
with changes in fees and expenses of the Trustee, the Sponsor and Evaluator
and with the principal prepayment, redemption, maturity, exchange or sale of
Bonds while the Public Offering Price will vary with changes in the offering
price of the underlying Bonds and with changes in the Purchased Interest and
Daily Accrued Interest; therefore, there is no assurance that the present
Estimated Current Return will be realized in the future. Estimated Long-Term
Return is calculated using a formula which (1) takes into consideration, and
determines and factors in the relative weightings of, the market values,
yields (which takes into account the amortization of premiums and the
accretion of discounts) and estimated retirement dates of all of the Bonds in
the applicable Trust and (2) takes into account the expenses and sales charge
associated with each Trust Unit. Since the market values and estimated
retirement dates of the Bonds and the expenses of a Trust will change, there
is no assurance that the present Estimated Long-Term Return will be realized
in the future. Estimated Current Return and Estimated Long-Term Return are
expected to differ because the calculation of Estimated Long-Term Return
reflects the estimated date and amount of principal returned while Estimated
Current Return calculations include only net annual interest income and Public
Offering Price.
MARKET FOR UNITS. After the initial offering period, while under no obligation
to do so, the Sponsor intends to, and certain of the other Underwriters may,
maintain a market for the Units and to offer to repurchase such Units at
prices subject to change at any time which are based on the aggregate bid side
evaluation of the Municipal Bonds in the Trust Fund plus Purchased Interest
and Daily Accrued Interest.
2
<PAGE>
KEMPER DEFINED FUNDS SERIES 16
ESSENTIAL INFORMATION
AS OF THE OPENING OF BUSINESS ON THE DATE OF DEPOSIT
<TABLE>
<C> <S>
SPONSOR AND EVALUATOR: KEMPER UNIT INVESTMENT TRUSTS, A SERVICE OF
KEMPER SECURITIES, INC.
TRUSTEE: INVESTORS FIDUCIARY TRUST COMPANY
</TABLE>
The income, expense and distribution data set forth below has been calculated
for Unitholders purchasing less than 10,000 Units. Unitholders purchasing more
than 10,000 Units will receive a slightly higher return because of the reduced
sales charge for larger purchases.
<TABLE>
<CAPTION>
INSURED INSURED
NATIONAL OHIO
SERIES 9 SERIES 5
------- -------
<S> <C> <C>
Public Offering Price per Unit (1)(2)................................................ $ 10.000 $ 10.000
Principal Amount of Municipal Bonds per Unit......................................... $ 9.700 $ 9.725
Estimated Current Return based on Public Offering Price (3)(4)(5)(7)................. 4.27% 4.12%
Estimated Long-Term Return (3)(4)(5)(7).............................................. 4.45% 4.28%
Estimated Normal Annual Distribution per Unit (7).................................... $ 0.42732 $ 0.41256
Principal Amount of Municipal Bonds.................................................. $ 10,000,000 $ 3,750,000
Number of Units...................................................................... 1,030,943 385,622
Fractional Undivided Interest per Unit............................................... 1/1,030,943 1/385,622
Calculation of Public Offering Price--Less than 10,000 Units:
Aggregate Offering Price of Bonds................................................ $ 9,908,270 $ 3,715,306
Aggregate Offering Price of Bonds per Unit....................................... $ 9.611 $ 9.635
Purchased Interest (1)........................................................... $ 91,878 $ 25,230
Purchased Interest per Unit...................................................... $ 0.089 $ 0.065
Total Offering Price and Purchased Interest Per Unit (1)....................... $ 9.700 $ 9.700
Plus Sales Charge per Unit (9)................................................... $ 0.300 $ 0.300
Public Offering Price per Unit (1)(2).............................................. $ 10.000 $ 10.000
Redemption Price per Unit............................................................ $ 9.621 $ 9.612
Sponsor's Initial Repurchase Price per Unit.......................................... $ 9.700 $ 9.700
Excess of Public Offering Price per Unit over Redemption Price per Unit.............. $ 0.379 $ 0.388
Excess of Public Offering Price per Unit over Sponsor's Initial Repurchase Price per
Unit............................................................................... $ 0.300 $ 0.300
Calculation of Estimated Net Annual Interest Income per Unit (7):
Estimated Annual Interest Income................................................. $ 0.44115 $ 0.42885
Less: Estimated Annual Expense................................................... $ 0.01397 $ 0.01641
---------- ----------
Estimated Net Annual Interest Income............................................. $ 0.42718 $ 0.41244
Estimated Daily Rate of Net Interest Accrual per Unit................................ $ 0.001187 $ 0.001146
Minimum Principal Value of the Trust under which Trust Agreement may be terminated... $ 2,000,000 $ 750,000
</TABLE>
Evaluations for purposes of sale, purchase or redemption of Units are made as
of the close of business of the Sponsor (3:15 p.m. Central Time) next
following receipt of an order for a sale or purchase of Units or receipt by
Investors Fiduciary Trust Company of Units tendered for redemption.
3
<PAGE>
ESSENTIAL INFORMATION--(CONTINUED)
<TABLE>
<CAPTION>
INSURED INSURED
NATIONAL OHIO
SERIES 9 SERIES 5
<S> <C> <C>
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Trustee's Annual Fee per $1,000 principal amount of Municipal Bonds (6)................ $0.690 $0.770
Reduction of Trustee's fee per Unit during the first year (7).......................... $0.00000 $0.00000
Estimated annual interest income per Unit during the first year (7).................... $0.44115 $0.42885
Interest Payments (8):
First Payment per Unit, representing 15 days........................................... $0.01781 $0.01719
Estimated Normal Monthly Distribution per Unit......................................... $0.03561 $0.03438
Estimated Normal Annual Distribution per Unit.......................................... $0.42732 $0.41256
Sales Charge (9):
As a percentage of Public Offering Price per Unit...................................... 3.000% 3.000%
As a percentage of net amount invested................................................. 3.093% 3.093%
As a percentage of net amount invested in earning assets............................... 3.121% 3.114%
Date of Trust Agreements............................................... March 9, 1994
First Settlement Date.................................................. March 16, 1994
Mandatory Termination Date............................................. December 31, 2022
Evaluator's Annual Evaluation Fee...................................... Maximum of $0.30 per $1,000 Principal
Amount of Municipal Bonds
Sponsor's Annual Surveillance Fee...................................... Maximum of $0.002 per Unit
</TABLE>
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(1) Purchased Interest is a portion of the unpaid interest that has
accumulated on the Bonds in a Trust from the later of the last payment
date on the Bonds or the date of issuance thereof through the First
Settlement Date of such Trust. In addition, anyone ordering Units after
the Date of Deposit will pay Daily Accrued Interest from the later of the
First Settlement Date or the last Record Date for such Trust to the date
of settlement (five business days after order). Daily Accrued Interest is
the estimated daily rate of net interest accrued on the Bonds in a Trust.
(2) Many unit investment trusts comprised of municipal securities issue a
number of units such that each unit represents approximately $1,000
principal amount of underlying securities. The Sponsor, on the other
hand, in determining the number of Units for each Trust has elected not
to follow this format but rather to provide that number of Units which
will establish as close as possible as of the Date of Deposit a Public
Offering Price per Unit of $10.
(3) The Estimated Current Return and Estimated Long-Term Return are increased
for transactions entitled to a reduced sales charge. See "Public Offering
of Units--Public Offering Price."
(4) The Estimated Current Returns are calculated by dividing the estimated
net annual interest income per Unit by the Public Offering Price. The
estimated net annual interest income per Unit will vary with changes in
fees and expenses of the Trustee, the Sponsor and the Evaluator and with
the principal prepayment, redemption, maturity, exchange or sale of Bonds
while the Public Offering Price will vary with changes in the offering
price of the underlying Bonds and with changes in the Purchased Interest
and Daily Accrued Interest; therefore, there is no assurance that the
present Estimated Current Returns indicated above will be realized in the
future. The Estimated Long-Term Returns are calculated using a formula
which (1) takes into consideration, and determines and factors in the
relative weightings of, the market values, yields (which takes into
account the amortization of premiums and the accretion of discounts) and
estimated retirement dates of all of the Bonds in the applicable Trust
and (2) takes into account the expenses and sales charge associated with
each Trust Unit. Since the market values and estimated retirement dates
of the Bonds and expenses of each Trust will change, there is no
assurance that the present Estimated Long-Term Returns as indicated above
will be realized in the future. The Estimated Current Returns and
Estimated Long-Term Returns are expected to differ because the
calculation of the Estimated Long-Term Returns reflects the estimated
date and amount of principal returned while the Estimated Current Return
calculations include only net annual interest income and Public Offering
Price.
(5) This figure is based on estimated per Unit cash flows. Estimated cash
flows will vary with changes in fees and expenses, with changes in
current interest rates and with the principal prepayment, redemption,
maturity, call, exchange or sale of the underlying Bonds. The estimated
cash flows to Unitholders for the Trusts are either set forth under
"Estimated Cash Flows to Unitholders" or are available upon request at no
charge from the Sponsor.
(6) See "Expenses of the Trusts."
(7) During the first year, the Trustee has agreed to reduce its fee (and to
the extent necessary pay expenses of the Trust Funds) in the amounts
stated above. The Trustee has agreed to the foregoing to cover all or a
portion of the interest on any Municipal Bonds accruing prior to their
expected dates of delivery, since interest will not accrue to the benefit
of Unitholders of a Trust Fund until such Bonds are actually delivered to
the Trust Fund. The estimated net annual interest income per Unit will
remain as indicated. See "The Trust Funds" and "Interest, Estimated
Long-Term Return and Estimated Current Return."
(8) Unitholders will receive interest distributions monthly. The Record Date
is the first day of the month, commencing April 1, 1994, and the
distribution date is the fifteenth day of the month, commencing April 15,
1994.
(9) The sales charge as a percentage of the net amount invested in earning
assets will increase as Daily Accrued Interest increases. Transactions
subject to quantity discounts (see "Public Offering of Units-Public
Offering Price") will have reduced sales charges, thereby reducing all
percentages in the table.
4
<PAGE>
THE TRUST FUNDS
GENERAL
Kemper Defined Funds Series 16 includes the following separate unit investment
trusts created by the Sponsor under the name Kemper Defined Funds: "Insured
National Series 9" (the "Insured National Trust") and "Insured Ohio Series 5"
(the "Insured State Trust") (hereinafter collectively called the "Trusts" or
"Trust Funds"). Each of the Trust Funds is generally similar but each is
separate and is designated by a different series number. Each of the Trust
Funds was created under the laws of the State of Missouri pursuant to a trust
indenture dated the Date of Deposit (the "Trust Agreements") between Kemper
Unit Investment Trusts, a service of Kemper Securities, Inc. (the "Sponsor")
and Investors Fiduciary Trust Company (the "Trustee").*
The Insured National Trust was formed for the purpose of gaining interest
income free from Federal income taxes while conserving capital and
diversifying risks by investing in an insured, fixed portfolio consisting of
obligations issued by or on behalf of states of the United States or counties,
municipalities, authorities or political subdivisions thereof.
The Insured State Trust was formed for the purpose of gaining interest income
free from Federal and State income taxes and, where applicable, local income
and/or property taxes while conserving capital and diversifying risks by
investing in an insured, fixed portfolio consisting of obligations issued by
or on behalf of the State for which such Trust Fund is named or counties,
municipalities, authorities or political subdivisions thereof.
There is, of course, no guarantee that the Trust Funds' objectives will be
achieved.
On the Date of Deposit, the Sponsor delivered to the Trustee that aggregate
principal amount of Municipal Bonds or contracts for the purchase thereof for
deposit in the Trust Funds as set forth under "Essential Information." Of such
principal amount, the amount specified in "Essential Information" was
deposited in each Trust. In exchange for the Municipal Bonds so deposited, the
Trustee delivered to the Sponsor documentation evidencing the ownership of
that number of Units for each Trust Fund as indicated under "Essential
Information." Offerees in the States of Indiana, Virginia and Washington may
only purchase units of the Insured National Trust.
Each Trust Fund initially consists of delivery statements (i.e., contracts) to
purchase obligations (the "Municipal Bonds" or the "Bonds"). The Sponsor has a
limited right of substitution for such Bonds in the event of a failed
contract. See "Portfolios."
Certain of the Bonds in certain of the Trust Funds may have been purchased on
a "when, as and if issued" or "delayed delivery" basis with delivery expected
to take place after the First Settlement Date. See "The Trust Fund--Series
Information" and "Notes to Portfolios." Accordingly, the delivery of such
Bonds may be delayed or may not occur. Interest on these Municipal Bonds
begins accruing to the benefit of Unitholders on their respective dates of
delivery. To the extent any Municipal Bonds are actually delivered to a Trust
Fund after their respective expected dates of delivery, Unitholders who
purchase Units in such Trust Fund prior to the date such "when, as and if
issued" or "delayed delivery" Municipal Bonds are actually delivered to the
Trustee would, to the extent such income is not offset by a reduction in the
Trustee's fee (or, to the extent necessary, other expenses), be required to
reduce their tax basis in their Units of such Trust Fund since the interest
accruing on such Bonds during the interval between their purchase of Units and
the actual delivery of such Bonds would, for tax purposes, be considered a
non-taxable return of principal rather than as tax-exempt interest. The result
of such adjustment, if necessary, would be, during the first year only, that
the Estimated Long-Term Returns may be, and the Estimated Current Returns
would be, slightly lower than those shown herein, assuming the Trust Fund
portfolios and estimated annual expenses do not vary. Holders of Units will be
"at risk" with respect to these Bonds (i.e., may derive either gain or loss
from fluctuations in the evaluation of such Bonds) from the date they commit
for Units.
- ---------------------------
* Reference is made to the Trust Agreements, and any statements contained
herein are qualified in their entirety by the provisions of the Trust
Agreements.
5
<PAGE>
All of the Municipal Bonds in each Trust Fund are rated in the category "BBB"
or better by Standard & Poor's or "Baa" or better by Moody's. See "Description
of Municipal Bond Ratings" and "The Trust Fund-- Portfolios."
Each Unit represents an undivided fractional interest in the Municipal Bonds
deposited in the appropriate Trust Fund, as shown under "Essential
Information." All Municipal Bonds deposited were accompanied by copies of
opinions of bond counsel given at the time of original delivery of such
obligations to the effect that interest thereon is exempt from all Federal
income taxes, except in certain instances depending on the holder, and from
State income taxes and, where applicable, local income and/or property taxes
for residents of the State for which such Trust Fund is named. Capital gains,
if any, are subject to Federal income taxation, payable by Unitholders. See
"Federal Tax Status."
An investment in Units of a Trust Fund should be made with an understanding of
the risks which an investment in fixed rate debt obligations may entail,
including the risk that the value of the portfolio and hence of the Units will
decline with increases in interest rates. The value of the underlying
Municipal Bonds will fluctuate inversely with changes in interest rates. The
uncertain economic conditions of recent years, together with the fiscal
measures adopted to attempt to deal with them, have resulted in wide
fluctuations in interest rates and, thus, in the value of fixed rate debt
obligations generally and long-term obligations in particular. The Sponsor
cannot predict the degree to which such fluctuations will continue in the
future.
SERIES INFORMATION
<TABLE>
<CAPTION>
INSURED INSURED
NATIONAL OHIO
SERIES 9 SERIES 5
<S> <C> <C>
------------ ------------
Number of Obligations..................................................................... 7 5
Territorial Obligations (1)...............................................................
General Obligation Bonds (2)(4)........................................................... 4 (50%) 1 (20)%
Revenue Bonds (3)(4)...................................................................... 3 (50%) 4 (80%)
Revenue Bond Concentrations (4):
Airport...................................................................................
Correctional Facilities................................................................... 1 (10%) 1 (20%)
Education................................................................................. 2 (40%)
Electric Systems.......................................................................... 1 (20%)
Excise Tax Revenue........................................................................ 1 (20%)
Hospital.................................................................................. 1 (20%)
Housing...................................................................................
Lease Revenue.............................................................................
Port Authority............................................................................
Wastewater................................................................................
Tax Allocation............................................................................
Transportation............................................................................
Tollroad..................................................................................
Utilities.................................................................................
Water and Sewer...........................................................................
Miscellaneous.............................................................................
Average life of the Municipal Bonds in the
Trust (5)............................................................................... 7 7
Percentage of "when, as and if issued " or "delayed delivery" Bonds purchased by the
Trust................................................................................... None None
Syndication (6)........................................................................... 10 20
</TABLE>
- ------------------------------
(1) Municipal Bonds issued by Territories of the United States (which term
includes the Commonwealth of Puerto Rico and the District of Columbia)
generally receive the same tax exempt treatment for both state and
Federal tax purposes as Municipal Bonds issued by political entities in
the named State Trust. See "Special Considerations and State Tax Status"
for each Trust.
(2) General obligation bonds are general obligations of governmental entities
and are backed by the taxing powers of such entities.
(3) Revenue bonds are payable from the income of a specific project or
authority and are not supported by an issuer's power to levy taxes.
(4) The portfolio percentage in parenthesis represents the principal amount
of such Bonds to the total principal amount of Bonds in the Trust. For a
discussion of the risks associated with investments in the bonds of such
issuers, see "Portfolios--General Trust Information."
(5) The average life of the Bonds in a Trust is calculated based upon the
stated maturities of the Bonds in such Trust (or, with respect to Bonds
for which funds or securities have been placed in escrow to redeem such
Bonds on a stated call date, based upon such call date). The average life
of the Bonds in a Trust may increase or decrease from time to time as
Bonds mature or are called or sold.
(6) The Sponsor and/or affiliated Underwriters have participated as either
the sole underwriter or manager or a member of underwriting syndicates
from which approximately that percentage listed above of the aggregate
principal amount of the Bonds in such Trust were acquired.
6
<PAGE>
TAXABLE EQUIVALENT ESTIMATED CURRENT RETURN TABLES
As of the date of this Prospectus, the following tables show the approximate
taxable estimated current returns for individuals that are equivalent to
tax-exempt estimated current returns under combined Federal and State taxes
(where applicable) using the published Federal and State tax rates (where
applicable) scheduled to be in effect in 1994. They incorporate increased tax
rates for higher income taxpayers that were included in the Revenue
Reconciliation Act of 1993. These tables illustrate approximately what you
would have to earn on taxable investments to equal the tax-exempt estimated
current return in your income tax bracket. For cases in which more than one
State bracket falls within a Federal bracket the highest State bracket is
combined with the Federal bracket. The combined State and Federal tax rates
shown reflect the fact that State tax payments are currently deductible for
Federal tax purposes, and have been rounded to the nearest 1/10 of 1%. The
tables do not show the approximate taxable estimated current returns for
individuals that are subject to the alternative minimum tax. The taxable
equivalent estimated current returns may be somewhat higher than the
equivalent returns indicated in the following tables for those individuals who
have adjusted gross incomes in excess of $108,450. The tables do not reflect
the effect of limitations on itemized deductions and the deduction for
personal exemptions. They were designed to phase out certain benefits of these
deductions for higher income taxpayers. These limitations, in effect, raise
the marginal Federal tax rate to approximately 44 percent for taxpayers filing
a joint return and entitled to four personal exemptions and to approximately
41 percent for taxpayers filing a single return entitled to only one personal
exemption. These limitations are subject to certain maximums, which depend on
the number of exemptions claimed and the total amount of the taxpayer's
itemized deductions. For example, the limitation on itemized deductions will
not cause a taxpayer to lose more than 80% of his allowable itemized
deductions, with certain exceptions. See "Federal Tax Status" for a more
detailed discussion of recent Federal tax legislation, including a discussion
of provisions affecting corporations.
NATIONAL
<TABLE>
<CAPTION>
TAXABLE INCOME ($1,000'S) TAX-EXEMPT ESTIMATED CURRENT RETURN
------------------------------------ ---------------------------------------------------------------
SINGLE JOINT TAX 3 1/2% 4% 4 1/2% 5% 5 1/2% 6% 6 1/2%
RETURN RETURN BRACKET EQUIVALENT TAXABLE ESTIMATED CURRENT RETURN
------ ------ -------- ---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 22.75 $ 0 - 38.00 15 % 4.12% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65%
22.75 - 55.10 38.00 - 91.85 28 4.86 5.56 6.25 6.94 7.64 8.33 9.03
55.10 - 115.00 91.85 - 140.00 31 5.07 5.80 6.52 7.25 7.97 8.70 9.42
115.00 - 250.00 140.00 - 250.00 36 5.47 6.25 7.03 7.81 8.59 9.38 10.16
Over 250.00 Over 250.00 39.6 5.79 6.62 7.45 8.28 9.11 9.93 10.76
</TABLE>
OHIO
<TABLE>
<CAPTION>
TAXABLE INCOME ($1,000'S) TAX-EXEMPT ESTIMATED CURRENT RETURN
------------------------------------ ---------------------------------------------------------------
SINGLE JOINT TAX 3 1/2% 4% 4 1/2% 5% 5 1/2% 6% 6 1/2%
RETURN RETURN BRACKET EQUIVALENT TAXABLE ESTIMATED CURRENT RETURN
------ ------ -------- ---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 22.75 $ 0 - 38.00 18.8 % 4.31% 4.93% 5.54% 6.16% 6.77% 7.39% 8.00%
22.75 - 55.10 31.7 5.12 5.86 6.59 7.32 8.05 8.78 9.52
38.00 - 91.85 32.3 5.17 5.91 6.65 7.39 8.12 8.86 9.60
55.10 - 115.00 91.85 - 140.00 35.8 5.45 6.23 7.01 7.79 8.57 9.35 10.12
115.00 - 250.00 140.00 - 250.00 40.8 5.91 6.76 7.60 8.45 9.29 10.14 10.98
Over 250.00 Over 250.00 44.1 6.26 7.16 8.05 8.94 9.84 10.73 11.63
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
KEMPER DEFINED FUNDS SERIES 16 INSURED NATIONAL SERIES 9
</TABLE>
PORTFOLIO
AS OF THE DATE OF DEPOSIT: MARCH 9, 1994
<TABLE>
<CAPTION>
NAME OF ISSUER, TITLE, COUPON RATE AND MATURITY DATE
OF BOND COST OF
AGGREGATE REPRESENTED BY SPONSOR'S CONTRACTS TO PURCHASE REDEMPTION BONDS
PRINCIPAL BONDS(1)(5) RATING(2) PROVISIONS(3) TO TRUST(4)
<C> <S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
$ 2,000,000 Municipality of Anchorage, Alaska, 1993 General AAA Non-Callable $ 1,994,020
Obligation Refunding General Purpose Bonds, Series
B (MBIA Insured), 4.25% Due 08/01/1998
2,000,000 Washington Public Power Supply System, Nuclear AAA Non-Callable 2,011,160
Project No. 2, Refunding Revenue Bonds, Series
1993A (FSA Insured), 4.75% Due 07/01/1999
2,000,000 City of Austin, Texas, Hotel Occupancy Tax Revenue AAA Non-Callable 1,948,960
Refunding Bonds, Series 1993A (AMBAC Insured),
4.30% Due 11/15/2000
2,000,000 The City of New York, General Obligation Bonds, AAA Non-Callable 2,033,640
Fiscal 1994 Series F (MBIA Insured), 5.125% Due
08/01/2001
60,000(P) Brighton Area Schools, County of Livingston, State of AAA Non-Callable 39,685
Michigan, 1990 School Building and Site Bonds
(General Obligations - Unlimited Tax), Series I
(AMBAC Insured), 0.00% Due 05/01/2002
940,000 Chicago School Finance Authority, Illinois, General AAA Non-Callable 908,595
Obligation School Financing Bonds, Series 1994A
(MBIA Insured), 4.50% Due 06/01/2002
1,000,000 State of Ohio (Ohio Building Authority), Local Jail AAA Non-Callable 972,210
Grant Refunding Bonds, 1994 Series A (AMBAC
Insured), 4.40% Due 10/01/2002
----------- -----------
$ 10,000,000 $ 9,908,270
----------- -----------
----------- -----------
</TABLE>
- ------------
See "Notes to Portfolios."
8
<PAGE>
<TABLE>
<S> <C>
KEMPER DEFINED FUNDS SERIES 16 INSURED OHIO
SERIES 5
</TABLE>
PORTFOLIO
AS OF THE DATE OF DEPOSIT: MARCH 9, 1994
<TABLE>
<CAPTION>
NAME OF ISSUER, TITLE, COUPON RATE AND MATURITY DATE OF
BOND COST OF
AGGREGATE REPRESENTED BY SPONSOR'S CONTRACTS TO PURCHASE REDEMPTION BONDS
PRINCIPAL BONDS(1)(5) RATING(2) PROVISIONS(3) TO TRUST(4)
<C> <S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
$ 750,000 Kent State University (A State University of Ohio), AAA Non-Callable $ 754,193
General Receipts Bonds, Series 1994 (AMBAC Insured),
4.30% Due 05/01/1998
750,000 Columbus City School District, Ohio, General Obligation AAA Non-Callable 757,440
(Unlimited Tax) Bonds, School Building Renovation and
Improvement Refunding Bonds, Series 1993 (FGIC
Insured), 4.65% Due 12/01/1999
750,000 State of Ohio (Ohio Public Facilities Commission), AAA Non-Callable 735,000
Higher Education Capital Facilities Bonds, Series
II-1994A (AMBAC Insured), 4.25% Due 12/01/2000
750,000 State of Ohio (Ohio Building Authority), Local Jail AAA Non-Callable 728,760
Grant Refunding Bonds, 1994 Series A (AMBAC Insured),
4.25% Due 10/01/2001
750,000 County of Montgomery, Ohio, Sisters of Charity Health AAA Non-Callable 739,913
Care Systems, Inc., Revenue Bonds, Series 1994 (MBIA
Insured), 4.60% Due 05/15/2002
---------- ----------
$ 3,750,000 $ 3,715,306
---------- ----------
---------- ----------
</TABLE>
- ------------
See "Notes to Portfolios."
9
<PAGE>
NOTES TO PORTFOLIOS:
All insured Bonds in the Trust Funds are insured only by the insurer indicated
in the description. The insurance was obtained directly by the issuer of the
Bonds or by the Sponsor.
(P) These Bonds have been purchased at an original issue discount from the
par value because there is little or no stated interest income thereon.
Over the life of these Bonds the value increases, so that upon maturity
the holders of the Bonds will receive 100% of the principal amount
thereof.
(S) These Municipal Bonds are "when, as and if issued" or "delayed
delivery" and have expected settlement dates after the "First Settlement
Date." Interest on these Bonds begins accruing to the benefit of
Unitholders on the date of delivery.
(C) This Bond is of the same issue as another Bond in the Trust.
(D) This issue of Bonds is secured by, and payable from, escrowed U.S.
Government securities.
(1) Contracts to acquire Municipal Bonds were entered into by the Sponsor
between February 1, 1994 and March 3, 1994. All Bonds are represented by
regular way contracts, unless otherwise indicated, for the performance of
which an irrevocable letter of credit has been deposited with the
Trustee.
(2) The ratings have been provided by Muller Data Corporation as reported to
Muller Data Corporation by the respective rating agencies. All ratings
represent Standard & Poor's Corporation ratings unless marked with the
symbol "(STAR)" in which case the rating represents a Moody's Investors
Service, Inc. rating. A brief description of the applicable Standard &
Poor's and Moody's rating symbols and their meanings is set forth under
"Description of Municipal Bond Ratings." A rating marked by "g" is
contingent upon Standard & Poor's Corporation receiving final
documentation from the insurer.
(3) There is shown under this heading the year in which each issue of
Municipal Bonds is initially redeemable and the redemption price for that
year; unless otherwise indicated, each issue continues to be redeemable
at declining prices thereafter, but not below par value. The prices at
which the Bonds may be redeemed or called prior to maturity may or may
not include a premium and, in certain cases, may be less than the cost of
the Bonds to the Trust. In addition, certain Bonds in the portfolio may
be redeemed in whole or in part other than by operation of the stated
redemption or sinking fund provisions under certain unusual or
extraordinary circumstances specified in the instruments setting forth
the terms and provisions of such Bonds. "S.F." indicates that a sinking
fund is established with respect to an issue of Municipal Bonds.
(4) During the initial offering period, evaluations of Municipal Bonds are
made on the basis of current offering side evaluations of the Municipal
Bonds. The aggregate offering price is greater than the aggregate bid
price of the Municipal Bonds, which is the basis on which Redemption
Prices will be determined for purposes of redemption of Units after the
initial offering period.
(5) Other information regarding the Municipal Bonds in the Trust Funds, at
the opening of business on the Date of Deposit, is as follows:
<TABLE>
<CAPTION>
ANNUAL
COST OF PROFIT OR INTEREST BID SIDE
BONDS (LOSS) TO INCOME TO VALUE
TRUST FUND TO SPONSOR SPONSOR TRUST OF BONDS
----------- --------- --------- -----------
<S> <C> <C> <C> <C>
Insured National Series 9................................. $ 9,857,489 $ 50,781 $ 454,800 $ 9,826,852
Insured Ohio Series 5..................................... $ 3,695,958 $ 19,348 $ 165,375 $ 3,681,428
</TABLE>
Neither Cost of Bonds to Sponsor nor Profit or (Loss) to Sponsor reflects
underwriting profits or losses received or incurred by the Sponsor
through its participation in underwriting syndicates but such amounts
reflect portfolio hedging transaction costs, hedging gains or losses,
certain other carrying costs and the cost of insurance obtained by the
Sponsor, if any, prior to the Date of Deposit for individual Bonds.
10
<PAGE>
UNDERWRITING
The Underwriters named below have severally purchased Units of the Trusts in
the following respective aggregate percentages:
<TABLE>
<CAPTION>
INSURED INSURED
NATIONAL OHIO
SERIES 9 SERIES 5
<S> <C> <C>
-------------- --------------
*Kemper Unit Investment Trusts 910,943 335,622
*Kemper Securities, Inc. 50,000 50,000
Gruntal & Company, Inc. 10,000
J. C. Bradford & Company 10,000
Morgan Keegan & Co., Inc. 10,000
Raffensperger, Hughes & Co., Inc. 10,000
Robert W. Baird & Co. 10,000
Roney & Company 10,000
Stifel Nicolaus & Company, Inc. 10,000
-------------- --------------
TOTAL UNITS: 1,030,943 385,622
-------------- --------------
-------------- --------------
</TABLE>
Underwriter Addresses:
Gruntal & Company, Inc., 14 Wall Street, 14th Floor, New York, NY 10005
J. C. Bradford & Company, 330 Commerce Street, Nashville, TN 37201-1809
*Kemper Securities, Inc., 77 West Wacker Drive, 28th Floor, Chicago, IL
60601-1994
*Kemper Unit Investment Trusts a service of Kemper Securities, Inc., 77 West
Wacker Drive, 5th Floor, Chicago, IL 60601-1994
Morgan Keegan & Co., Inc., Morgan Keegan Tower, 50 Front Street, Memphis, TN
38103
Raffensperger, Hughes & Co., Inc., 20 North Meridian Street, Indianapolis, IN
46204-3058
Robert W. Baird & Co., Inc., 777 East Wisconsin Avenue, Milwaukee, WI 53202
Roney & Company, One Griswold Street, Sixth Floor - UITs, Detroit, MI 48226
Stifel Nicolaus & Company, Inc., 500 North Broadway, St Louis, MO 63102
- ------------------
*Kemper Corporation owns or has a controlling interest in Kemper Unit
Investment Trusts (the Trusts' Sponsor and Evaluator) and Kemper Securities,
Inc. Kemper Unit Investment Trusts is a service of Kemper Securities, Inc. For
additional information about the Underwriters, see "Underwriting."
The Underwriters acquired the Units of the Trust Funds at a price per Unit
equal to the Public Offering Prices set forth under "Essential Information"
less the Underwriters' takedown. The amount of the Underwriters' takedown for
Trusts with a weighted average maturity less than 7.5 years for each Unit is
$.22 for those firms committing for 10,000-24,999 Units, $.22 plus 50% of any
net portfolio profit for those firms committing for 25,000-99,999 Units and
$.23 plus 50% of any net portfolio profit for those firms committing for
100,000 or more Units. The amount of the Underwriters' takedown for Trusts
with a weighted average maturity between 7.5 and 14.99 years for each Unit is
$.28 for those firms committing for 10,000-24,999 Units, $.28 plus 50% of any
net portfolio profit for those firms committing for 25,000-49,999 Units, $.29
plus 50% of any net portfolio profit for those firms committing for
50,000-99,999 Units and $.30 plus 50% of any net portfolio profit for those
firms committing for 100,000 or more Units. The amount of the Underwriters'
takedown for Trusts with a weighted average maturity greater than 14.99 years
for each Unit is $.31 for those firms committing for 10,000-24,999 Units, $.31
plus 50% of any net portfolio profit for those firms committing for
25,000-49,000 Units, $.32 plus 50% of any net portfolio profit for those firms
committing for 50,000-99,000 Units and $.33 plus 50% of any net portfolio
profit for those firms committing for 100,000 or
11
<PAGE>
more Units. In connection with any quantity discounts (see "Public Offering of
Units--Public Offering Price"), the Sponsor and the applicable Underwriter
will each receive reduced concessions as a result of the reduced sales charges
to the investor. In addition to such discounts, the Sponsor may, from time to
time, pay or allow an additional discount, in the form of cash or other
compensation, to dealers who underwrite additional Units of a Trust or who
sell, during a specified time period, a minimum dollar amount of Units of a
Trust and other unit investment trusts underwritten by the Sponsor. The
Underwriting Agreement provides that the Sponsor will select and purchase the
Municipal Bonds for deposit in the Trust Funds on its own behalf and on behalf
of the other Underwriters.
The Underwriting Agreement provides that a public offering of the Units of the
Trust Funds will be made by the Underwriters at the Public Offering Price
described in the Prospectus. Units may also be sold to or through dealers, who
are members of the National Association of Securities Dealers, Inc., and
others at prices representing discounts from the Public Offering Price.
However, resales of Units of the Trust Funds to the public will be made at the
Public Offering Price thereof.
Underwriters and broker-dealers of the Trusts, banks and/or others are
eligible to participate in a program in which such firms receive from the
Sponsor a nominal award for each of their representatives who have sold a
minimum number of Units of unit investment trusts created by the Sponsor
during a specified time period. In addition, at various times the Sponsor may
implement other programs under which the sales forces of Underwriters,
brokers, dealers, banks and/or others may be eligible to win other nominal
awards for certain sales efforts, or under which the Sponsor will reallow to
any such Underwriters, brokers, dealers, banks and/or others that sponsor
sales contests or recognition programs conforming to criteria established by
the Sponsor, or participate in sales programs sponsored by the Sponsor, an
amount not exceeding the total applicable sales charges on the sales generated
by such persons at the public offering price during such programs. Also, the
Sponsor in its discretion may from time to time pursuant to objective criteria
established by the Sponsor pay fees to qualifying underwriters, brokers,
dealers, banks or others for certain services or activities which are
primarily intended to result in sales of Units of the Trusts. Such payments
are made by the Sponsor out of its own assets, and not out of the assets of
the Trusts. These programs will not change the price Unitholders pay for their
Units or the amount that the Trusts will receive from the Units sold.
Approximately every eighteen months the Sponsor holds a business seminar which
is open to Underwriters that sell units of trusts it sponsors. The Sponsor
pays substantially all costs associated with the seminar, excluding
Underwriter travel costs. Each Underwriter is invited to send a certain number
of representatives based on the gross number of units such firm underwrites
during a designated time period.
12
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
UNITHOLDERS
KEMPER DEFINED FUNDS SERIES 16:
We have audited the accompanying statements of condition and the related
portfolios of Kemper Defined Funds Series 16 (Insured National Series 9 and
Insured Ohio Series 5) as of March 9, 1994. The statements of condition and
portfolios are the responsibility of the Sponsor. Our responsibility is to
express an opinion on such financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of Municipal Bonds owned at March 9, 1994 and
a letter of credit deposited to purchase Municipal Bonds by correspondence
with the Trustee. An audit also includes assessing the accounting principles
used and significant estimates made by the Sponsor, as well as evaluating the
overall financial statement presentation. We believe our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Kemper Defined Funds Series
16 (Insured National Series 9 and Insured Ohio Series 5) as of March 9, 1994,
in conformity with generally accepted accounting principles.
GRANT THORNTON
Chicago, Illinois
March 9, 1994
13
<PAGE>
KEMPER DEFINED FUNDS SERIES 16
STATEMENTS OF CONDITION
AT THE OPENING OF BUSINESS ON MARCH 9, 1994, THE DATE OF DEPOSIT
<TABLE>
<CAPTION>
INSURED INSURED
NATIONAL OHIO
SERIES 9 SERIES 5
------------- -------------
<S> <C> <C>
INVESTMENT IN MUNICIPAL BONDS
Municipal Bonds deposited in the Trusts (1)(4)...................................... $ 6,038,820 $ 735,000
Contracts to purchase Municipal Bonds (1)(4)........................................ 3,869,450 2,980,306
Accrued Interest to First Settlement Date on Municipal Bonds (1)(2)................. 91,878 25,230
----------- ----------
Total............................................................................... $ 10,000,148 $ 3,740,536
----------- ----------
----------- ----------
Number of Units..................................................................... 1,030,943 385,622
LIABILITIES AND INTEREST OF UNITHOLDERS
Accrued Interest payable to Sponsor (1)(2).......................................... $ -- $ --
Interest of Unitholders--
Cost to investors (3)............................................................... 10,309,430 3,856,220
Less: Gross underwriting commission (3)......................................... 309,282 115,684
------------ -----------
Net interest to Unitholders (1)(2)(3)............................................... 10,000,148 3,740,536
------------ -----------
Total............................................................................... $ 10,000,148 $ 3,740,536
------------ -----------
------------ -----------
</TABLE>
- ------------
NOTES:
(1) The aggregate value of the Municipal Bonds listed in each Portfolio and
their cost to the Trust are the same. The value of the Municipal Bonds is
determined by Muller Data Corporation on the bases set forth under
"Public Offering of Units--Public Offering Price". The contracts to
purchase Municipal Bonds are collateralized by an irrevocable letter of
credit of $6,913,196 which has been deposited with the Trustee. Of this
amount, $6,849,756 relates to the offering price of amount of Municipal
Bonds to be purchased and $63,440 relates to accrued interest on such
Municipal Bonds to the expected dates of delivery.
(2) Accrued interest on the underlying Municipal Bonds represents the
interest accrued as of the First Settlement Date from the later of the
last payment date on the Bonds of the date of issuance thereof. The
Trustee may advance to the Trust a portion of the accrued interest on the
underlying Municipal Bonds for distribution to the Sponsor as the
Unitholder of record as of the First Settlement Date. A portion of the
accrued interest on the underlying Municipal Bonds is payable by
investors and is included in the Public Offering Price. This portion is
called Purchased Interest and represents the difference between Accrued
Interest to First Settlement Date on Municipal Bonds and Accrued Interest
payable to Sponsor (see "Essential Information").
(3) The aggregate public offering price includes a sales charge for the
Trust as set forth under "Essential Information", assuming all single
transactions involve less than 10,000 Units. For single transactions
involving 10,000 or more Units, the sales charge is reduced (see "Public
Offering of Units--Public Offering Price") resulting in an equal
reduction in both the Cost to investors and the Gross underwriting
commission while the Net interest to Unitholders remains unchanged.
(4) Insurance coverage providing for the timely payment of principal and
interest on the Municipal Bonds in the Insured Trusts has been obtained
directly by the issuer of such Municipal Bonds or by the Sponsor from
Municipal Bond Investors Assurance Corporation or other insurers.
14
<PAGE>
SPECIAL CONSIDERATIONS AND STATE TAX STATUS
INSURED OHIO SERIES 5
SPECIAL CONSIDERATIONS
As described above, the Trust will invest substantially all of its net assets
in obligations issued by or on behalf of (or in certificates of participation
in lease-purchase obligations of) the State of Ohio, political subdivisions
thereof, or agencies or instrumentalities of the State or its political
subdivisions (Ohio Obligations). The Trust is therefore susceptible to general
or particular political, economic or regulatory factors that may affect
issuers of Ohio Obligations. The following information constitutes only a
brief summary of some of the many complex factors that may have an effect. The
information does not apply to "conduit" obligations on which the public issuer
itself has no financial responsibility. This information is derived from
official statements of certain Ohio issuers published in connection with the
issuance of securities and from other publicly available documents, and is
believed to be accurate. No independent verification has been made of any of
the following information.
The creditworthiness of Ohio Obligations of local issuers is generally
unrelated to that of obligations of the State itself, and the State has no
responsibility to make payments on those local obligations. There may be
specific factors that at particular times apply in connection with investment
in particular Ohio Obligations or in those obligations of particular Ohio
issuers. It is possible that the investment may be in particular Ohio
Obligations, or in those of particular issuers, as to which those factors
apply. However, the information set forth below is intended only as a general
summary and is not intended as a discussion of any specific factors that may
affect any particular obligation or issuer.
The timely payment of principal of and interest on Ohio Obligations has been
guaranteed by bond insurance purchased by the issuers, the Trust or other
parties. The timely payment of debt service on Ohio Obligations that are so
insured may not be subject to the factors referred to in this section of the
Prospectus.
Ohio is the seventh most populous state. Its 1990 Census count of 10,847,000
indicates a 0.5% population increase from 1980.
While diversifying more into the service and other non-manufacturing areas,
the Ohio economy continues to rely in part on durable goods manufacturing
largely concentrated in motor vehicles and equipment, steel, rubber products
and household appliances. As a result, general economic activity, as in many
other industrially-developed states, tends to be more cyclical than in some
other states and in the nation as a whole. Agriculture is an important segment
of the economy, with over half the State's area devoted to farming and
approximately 15% of total employment in agribusiness.
In prior years, the State's overall unemployment rate was commonly somewhat
higher than the national figure. For example, the reported 1990 average
monthly rate of 5.7%, compared to the 5.5% national figure. However, for both
1991 and 1992 the State rates (6.4% and 7.2%) were below the national rates
(6.7% and 7.4%). The unemployment rate and its effects vary among particular
geographic areas of the State.
There can be no assurance that future national, regional or state-wide
economic difficulties, and the resulting impact on State or local government
finances generally, will not adversely affect the market value of Ohio
Obligations held in the Trust portfolio or the ability of particular obligors
to make timely payments of debt service on (or lease payments relating to)
those obligations.
15
<PAGE>
The State operates on the basis of a fiscal biennium for its appropriations
and expenditures, and is precluded by law from ending its July 1 to June 30
fiscal year (FY) or fiscal biennium in a deficit position. Most State
operations are financed through the General Revenue Fund (GRF), for which
personal income and sales-use taxes are the major sources. Growth and
depletion of GRF ending fund balances show a consistent pattern related to
national economic conditions, with the ending FY balance reduced during less
favorable and increased during more favorable economic periods. The State has
well-established procedures for, and has timely taken, necessary actions to
ensure a resource/expenditure balances during less favorable economic periods.
These procedures include general and selected reductions in appropriations
spending.
Key biennium-ending fund balances at June 30, 1989 were $475.1 million in the
GRF and $353 million in the Budget Stabilization Fund (BSF, a cash and
budgetary management fund). In 1990-91, the latest complete fiscal biennium,
necessary corrective steps were taken to respond to lower receipts and higher
expenditures in certain categories than earlier estimated. Those steps
included selected reductions in appropriations spending and the transfer of
$64 million from the BSF to the GRF. The State reported June 30, 1991 ending
fund balances of $135.3 million (GRF) and $300 million (BSF).
To allow time to resolve certain Senate and House budget differences for the
latest complete biennium that began July 1, 1991, an interim appropriations
act was enacted effective July 1, 1991; it included State debt service and
lease rental GRF appropriations for the entire 1992-93 biennium, while
continuing most other appropriations for a month. The general appropriations
act for the entire biennium was passed on July 11, 1991 and signed by the
Governor. Pursuant to it, $200 million was transferred from the BSF to the GRF
in FY 1992.
Based on updated FY financial results and economic forecast in the course of
FY 1992, both in light of the continuing uncertain nationwide economic
situation, there was projected and timely addressed an FY 1992 imbalance in
GRF resources and expenditures. GRF receipts significantly below original
forecasts resulted primarily from lower collections of certain taxes,
particularly sales and use taxes and personal income taxes. Higher expenditure
levels resulted from higher spending in certain areas, particularly human
services including Medicaid. As an initial action, the Governor ordered most
State agencies to reduce GRF spending in the last six months of FY 1992 by a
total of approximately $184 million. As authorized by the General Assembly,
the $100.4 million BSF balance, and additional amounts from certain other
funds, were transferred late in the FY to the GRF, and adjustments in the
timing of certain tax payments made. Other administrative revenue and spending
actions resolved the remaining GRF imbalance.
A significant GRF shortfall (approximately $520 million) was then projected
for FY 1993. It was addressed by appropriate legislative and administrative
actions. As a first step the Governor ordered, effective July 1, 1992, $300
million in selected GRF spending reductions. Executive and legislative action
in December 1992 (a combination of tax revisions and additional appropriations
spending reductions) resulted in a balance of GRF resources and expenditures
in the 1992-93 biennium. The State reported an ending GRF fund balance at June
30, 1993 of approximately $111 million, and, as a first step to BSF
replenishment, OBM has deposited $21 million in the BSF.
No spending reductions were applied to appropriations needed for debt service
or lease rentals on any State obligations.
The GRF appropriations act for the current 1994-95 biennium was passed and
signed by the Governor on July 1, 1993. It includes all necessary GRF
appropriations for biennial State debt service and lease rental payments.
16
<PAGE>
The state's incurrence or assumption of debt without a vote of the people is,
with limited exceptions, prohibited by current State Constitutional
provisions. The State may incur debt limited in amount to $750,000 to cover
casual deficits or failures in revenues or to meet expenses not otherwise
provided for. The Constitution expressly precludes the State from assuming the
debts of any local government or corporation. (An exception in both cases is
for any debt incurred to repel invasion, suppress insurrection or defend the
State in war.)
By 13 constitutional amendments, the last adopted in 1993, Ohio voters have
authorized the incurrence of State debt to the payment of which taxes or
excises were pledged. At January 31, 1994, $712.6 million (excluding certain
highway bonds payable primarily from highway use charges) of this debt was
outstanding or awaiting delivery. The only such State debt then still
authorized to be incurred are portions of the highway bonds, and the
following: (a) up to $100 million of obligations for coal research and
development may be outstanding at any one time ($43.1 million outstanding);
(b) of $1.2 billion of obligations for local infrastructure improvements, no
more than $120 million may be issued in any calendar year ($645.2 million
outstanding or awaiting delivery, $480 million remaining to be issued); and
(c) up to $200 million in general obligation bonds for parks and recreation
purposes may be outstanding at any one time (no more than $50 million to be
issued in any one year, and none have yet been issued).
The Constitution also authorizes the issuance of State obligations for certain
purposes, the owners of which do not have the right to have excises or taxes
levied to pay debt service. Those special obligations include obligations
issued by the Ohio Public Facilities Commission and the Ohio Building
Authority, $4.28 billion of which were outstanding or awaiting sale or
delivery at January 31, 1994.
A 1990 constitutional amendment authorizes greater State and political
subdivision participation (including financing) in the provision of housing.
The General Assembly may for that purpose authorize the issuance of State
obligations secured by a pledge of all or such portion as it authorizes of
State revenues or receipts (but not by a pledge of the State's full faith and
credit).
State and local agencies issue revenue obligations that are payable from
revenues from or relating to certain facilities (but not from taxes). By
judicial interpretation, these obligations are not "debt" within
constitutional provisions. In general, payment obligations under
lease-purchase agreements of Ohio public agencies (in which certificates of
participation may be issued) are limited in duration to the agency's fiscal
period, and are renewable only upon appropriations being made available for
the subsequent fiscal period.
Local school districts in Ohio receive a major portion (on a state-wide basis,
recently approximately 46%) of their operating moneys from State subsidies,
but are dependent on local property taxes, and in 98 districts from
voter-authorized income taxes, for significant portions of their budgets.
Litigation, similar to that in other states, is pending questioning the
constitutionality of Ohio's system of school funding. A small number of the
State's 612 local school districts have in any year required special
assistance to avoid year-end deficits. A current program provides for school
district cash need borrowing directly from commercial lenders, with diversion
of State subsidy distributions to repayment if needed; in FY 1991 under this
program 26 districts borrowed a total of $41.8 million (including over $27
million by one district), and in FY 1992 borrowings totaled $61.9 million
(including $46.6 million for one district). FY 1993 loans totaled $94.5
million for 43 districts (including $75 million for one). FY 1994 loan
approvals totalled at January 31, 1994, $9.90 million for 16 districts.
Ohio's 943 incorporated cities and villages rely primarily on property and
municipal income taxes for their operations, and, with other local
governments, receive local government support and property tax relief moneys
distributed by the State. For those few municipalities that on occasion have
faced significant financial problems, than are statutory for a joint
State/local commission to monitor the municipality's fiscal affairs and for
development of a financial plan to eliminate deficits and cure any defaults.
Since inception in
17
<PAGE>
1979, these procedures have been applied to 23 cities and villages, in 16 of
them the fiscal situation was resolved and the procedures terminated.
At present the State itself does not levy ad valorem taxes on real or tangible
personal property. Those taxes are levied by political subdivisions and other
local taxing districts. The Constitution has since 1934 limited the amount of
the aggregate levy (including a levy for unvoted general obligations) of
property taxes by all overlapping subdivisions, without a vote of the electors
or a municipal charter provision, to 1% of true value in money, and statutes
limit the amount of that aggregate levy to 10 mills per $1 of assessed
valuation (commonly referred to as the "ten-mill limitation"). Voted general
obligations of subdivisions are payable from property taxes that are unlimited
as to amount or rate.
OHIO TAX STATUS
Commencing in 1985 Ohio municipalities may be permitted under Ohio law to
subject interest on certain of the obligations held by Insured Ohio Series 5
to income taxes imposed on their residents and entities doing business
therein.
In the opinion of Squire, Sanders & Dempsey, special counsel to the Trust Fund
for Ohio tax matters, under existing law:
Insured Ohio Series 5 is not taxable as a corporation or otherwise for
purposes of the Ohio personal income tax, the Ohio school district
income taxes, the Ohio corporation franchise tax, or the Ohio dealers in
intangibles tax.
Income of Insured Ohio Series 5 will be treated as the income of the
Unitholders for purposes of the Ohio personal income tax, the Ohio
school district income taxes, Ohio municipal income taxes and the Ohio
corporation franchise tax in proportion to the respective interest
therein of each Unitholder.
Interest on obligations issued by or on behalf of the State of Ohio,
political subdivisions thereof, or agencies or instrumentalities thereof
("Ohio Obligations"), or by the governments of Puerto Rico, the Virgin
Islands or Guam ("Territorial Obligations") held by the Trust Fund is
exempt from the Ohio personal income tax, Ohio municipal income taxes
and Ohio school district income taxes and is excluded from the net
income base of the Ohio corporation franchise tax when distributed or
deemed distributed to Unitholders.
Proceeds paid to Insured Ohio Series 5 under insurance policies
representing maturing interest on defaulted obligations held by Insured
Ohio Series 5 will be exempt from Ohio personal income tax, the Ohio
school district income taxes, Ohio municipal income taxes and the net
income base of the Ohio corporation franchise tax if, and to the same
extent as, such interest would be exempt from such taxes if paid
directly by the issuer of such obligations.
Gains and losses realized by the sale, exchange or other disposition by
Insured Ohio Series 5 of Ohio Obligations are excluded in determining
adjusted gross and taxable income for purposes of the Ohio personal
income tax, Ohio municipal income taxes and Ohio school district income
taxes, and are excluded from the net income base of the Ohio corporation
franchise tax when distributed or deemed distributed to Unitholders.
Except as stated in the next sentence, Ohio municipalities may not
impose income taxes on interest on or profit made on the sale of
intangible property, including Ohio Obligations and Territorial
Obligations. The municipalities of Indian Hill, Wickliffe and Wyoming
are authorized by state law to, and do, impose a tax on certain
intangible income; however, it is not clear that such municipalities may
tax interest on or profit made on the sale, exchange or other
disposition of Ohio Obligations. Specific Ohio statutes authorizing the
issuance of certain Ohio Obligations provide that the interest on
18
<PAGE>
and gain from sale or other disposition of such Ohio Obligations are
exempt from all taxation in the State. Such statutes would preclude any
Ohio municipal income taxation of interest on or gain from the sale of
the obligations to which the statutes relate. Interest on all
Territorial Obligations is exempt from all Ohio municipal income taxes.
For a discussion of Federal tax matters relating to distributions from the
Trust Fund, see "Federal Tax Status."
FEDERAL TAX STATUS
All Municipal Bonds deposited in the Trust Funds will be accompanied by copies
of opinions of bond counsel to the issuers thereof, given at the time of
original delivery of the Municipal Bonds, to the effect that the interest
thereon is excludable from gross income for Federal income tax purposes. In
connection with the offering of Units of the Trust Funds, neither the Sponsor,
the Trustee, the auditors nor their respective counsel have made any review of
the proceedings relating to the issuance of the Municipal Bonds or the basis
for such opinions. Gain realized on the sale or redemption of the Municipal
Bonds by the Trustee or of a Unit by a Unitholder is, however, includable in
gross income for Federal income tax purposes. Such gain does not include any
amounts received in respect of accrued interest or earned original issue
discount. It should be noted that under recently enacted legislation described
below that subjects accretion of market discount on tax-exempt bonds to
taxation as ordinary income, gain realized on the sale or redemption of
Municipal Bonds by the Trustee or of Units by a Unitholder that would have
been treated as capital gain under prior law is treated as ordinary income to
the extent it is attributable to accretion of market discount. Market discount
can arise based on the price a Trust Fund pays for Municipal Bonds or the
price a Unitholder pays for his or her Units. In addition, bond counsel to the
issuing authorities rendered opinions as to the exemption of interest on such
Bonds, when held by residents of the state in which the issuers of such bonds
are located, from state income taxes and, where applicable, local income
taxes.
In the opinion of Chapman and Cutler, counsel for the Sponsor, under existing
law:
Each Trust Fund is not an association taxable as a corporation for
Federal income tax purposes and interest and accrued original issue
discount on Bonds which is excludable from gross income under the
Internal Revenue Code of 1986 (the "Code") will retain its status when
distributed to Unitholders, except to the extent such interest is subject
to the alternative minimum tax, an additional tax on branches of foreign
corporations and the environmental tax (the "Superfund Tax"), as noted
below.
Each Unitholder is considered to be the owner of a pro rata portion of
each asset of the respective Trust Fund in the proportion that the number
of Units of such Trust Fund held by him bears to the total number of
Units outstanding of such Trust Fund under subpart E, subchapter J of
chapter 1 of the Code and will have a taxable event when such Trust Fund
disposes of a Bond, or when the Unitholder redeems or sells his Units.
Unitholders must reduce the tax basis of their Units for their share of
accrued interest received by a Trust Fund, if any, on Bonds delivered
after the Unitholders pay for their Units to the extent that such
interest accrued on such Bonds during the period from the Unitholder's
settlement date to the date such Bonds are delivered to a Trust Fund and,
consequently, such Unitholders may have an increase in taxable gain or
reduction in capital loss upon the disposition of such Units. Gain or
loss upon the sale or redemption of Units is measured by comparing the
proceeds of such sale or redemption with the adjusted basis of the Units.
If the Trustee disposes of Bonds (whether by sale, payment on maturity,
redemption or otherwise), gain or loss is recognized to the Unitholder.
The amount of any such gain or loss is measured by comparing the
Unitholder's pro rata share of the total proceeds from such disposition
with the Unitholder's basis for his or her fractional interest in the
asset disposed of. In the case of a Unitholder who purchases Units, such
basis (before adjustment for earned original issue discount and amortized
bond premium, if any) is determined by apportioning the cost of the Units
among each of the Trust Fund's assets ratably according to value as of
the date of acquisition of the Units. The tax cost reduction requirements
of the Code relating to amortization of bond premium may, under some
circumstances, result in the Unitholder realizing a taxable gain when his
Units are sold or redeemed for an amount equal to his original cost.
19
<PAGE>
Any proceeds paid under individual policies obtained by issuers of Bonds
which represent maturing interest on defaulted obligations held by the
Trustee will be excludable from Federal gross income if, and to the same
extent as, such interest would have been so excludable if paid in the
normal course by the issuer of the defaulted obligations.
Sections 1288 and 1272 of the Internal Revenue Code of 1986 (the "Code")
provide a complex set of rules governing the accrual of original issue
discount. These rules provide that original issue discount accrues either on
the basis of a constant compound interest rate or ratably over the term of the
Municipal Bond, depending on the date the Municipal Bond was issued. In
addition, special rules apply if the purchase price of a Municipal Bond
exceeds the original issue price plus the amount of original issue discount
which would have previously accrued based upon its issue price (its "adjusted
issue price"). The application of these rules will also vary depending on the
value of the Municipal Bond on the date a Unitholder acquires his Units, and
the price the Unitholder pays for his Units. Investors with questions
regarding these Code sections should consult with their tax advisers.
The Revenue Reconciliation Act of 1993 (the "Tax Act") subjects tax-exempt
bonds to the market discount rules of the Code effective for bonds purchased
after April 30, 1993. In general, market discount is the amount (if any) by
which the stated redemption price at maturity exceeds an investor's purchase
price (except to the extent that such difference, if any, is attributable to
original issue discount not yet accrued). Under the Tax Act, accretion of
market discount is taxable as ordinary income; under prior law the accretion
had been treated as capital gain. Market discount that accretes while a Trust
Fund holds a Municipal Bond would be recognized as ordinary income by the
Unitholders when principal payments are received on the Municipal Bond, upon
sale or at redemption (including early redemption), or upon the sale or
redemption of his or her Units, unless a Unitholder elects to include market
discount in taxable income as it accrues. The market discount rules are
complex and Unitholders should consult their tax advisers regarding these
rules and their application.
In the case of certain corporations, the alternative minimum tax and the
Superfund Tax depend upon the corporation's alternative minimum taxable
income, which is the corporation's taxable income with certain adjustments.
One of the adjustment items used in computing the alternative minimum taxable
income and the Superfund Tax of a corporation (other than an S Corporation,
Regulated Investment Company, Real Estate Investment Trust, or REMIC) is an
amount equal to 75% of the excess of such corporation's "adjusted current
earnings" over an amount equal to its alternative minimum taxable income
(before such adjustment item and the alternative tax net operating loss
deduction). "Adjusted current earnings" includes all tax-exempt interest,
including interest on all of the Bonds in a Trust Fund. Unitholders are urged
to consult their tax advisers with respect to the particular tax consequences
to them including the corporate alternative minimum tax, the Superfund Tax and
the branch profits tax imposed by Section 884 of the Code.
Counsel for the Sponsor has also advised that under Section 265 of the Code,
interest on indebtedness incurred or continued to purchase or carry Units of a
Trust Fund is not deductible for Federal income tax purposes. The Internal
Revenue Service has taken the position that such indebtedness need not be
directly traceable to the purchase or carrying of Units (however, these rules
generally do not apply to interest paid on indebtedness incurred to purchase
or improve a personal residence). Also, under Section 265 of the Code, certain
financial institutions that acquire Units would generally not be able to
deduct any of the interest expense attributable to ownership of such Units.
Investors with questions regarding these issues should consult with their tax
advisers.
In the case of certain Municipal Bonds in the Trust Funds, the opinions of
bond counsel indicate that interest on such securities received by a
"substantial user" of the facilities being financed with the proceeds of these
securities or persons related thereto, for periods while such securities are
held by such a user or related person, will not be excludable from Federal
gross income, although interest on such securities received by others would be
excludable from Federal gross income. "Substantial user" and "related person"
are defined under U.S. Treasury Regulations. Any person who believes that he
or she may be a "substantial user" or a "related person" as so defined should
contact his or her tax adviser.
20
<PAGE>
Under existing law, the Trust Funds are not associations taxable as a
corporation and the income of the Trust Funds will be treated as the income of
the Unitholders under the income tax laws of the State of Missouri.
All statements of law in the Prospectus concerning exclusion from gross income
for Federal, state or other tax purposes are the opinions of counsel and are
to be so construed.
At the respective times of issuance of the Bonds, opinions relating to the
validity thereof and to the exclusion of interest thereon from Federal gross
income are rendered by bond counsel to the respective issuing authorities.
Neither the Sponsor nor Chapman and Cutler has made any special review for the
Trust Funds of the proceedings relating to the issuance of the Bonds or of the
basis for such opinions.
For taxpayers other than corporations, net capital gains are presently subject
to a maximum marginal stated tax rate of 28 percent. However, it should be
noted that legislative proposals are introduced from time to time that affect
tax rates and could affect relative differences at which ordinary income and
capital gains are taxed. Under the Code, taxpayers must disclose to the
Internal Revenue Service the amount of tax-exempt interest earned during the
year.
Section 86 of the Code, in general, provides that fifty percent of Social
Security benefits are includible in gross income to the extent that the sum of
"modified adjusted gross income" plus fifty percent of the Social Security
benefits received exceeds a "base amount". The base amount is $25,000 for
unmarried taxpayers, $32,000 for married taxpayers filing a joint return and
zero for married taxpayers who do not live apart at all times during the
taxable year and who file separate returns. Modified adjusted gross income is
adjusted gross income determined without regard to certain otherwise allowable
deductions and exclusions from gross income and by including tax-exempt
interest. To the extent that Social Security benefits are includible in gross
income, they will be treated as any other item of gross income.
In addition, under the Tax Act, for taxable years beginning after December 31,
1993, up to 85 percent of Social Security benefits are includible in gross
income to the extent that the sum of "modified adjusted gross income" plus
fifty percent of Social Security benefits received exceeds an "adjusted base
amount." The adjusted base amount is $34,000 for unmarried taxpayers, $44,000
for married taxpayers filing a joint return and zero for married taxpayers who
do not live apart at all times during the taxable year and who file separate
returns.
Although tax-exempt interest is included in modified adjusted gross income
solely for the purpose of determining what portion, if any, of Social Security
benefits will be included in gross income, no tax-exempt interest, including
that received from the Trust Fund, will be subject to tax. A taxpayer whose
adjusted gross income already exceeds the base amount must include fifty
percent of his Social Security benefits in gross income whether or not he
receives any tax-exempt interest. A taxpayer whose modified adjusted gross
income (after inclusion of tax-exempt interest) does not exceed the base
amount need not include any Social Security benefits in gross income.
For a discussion of the state tax status of income earned on Units of a state
trust, see the discussion of tax status for the applicable trust. Except as
noted therein, the exemption of interest on state and local obligations for
Federal income tax purposes discussed above does not necessarily result in
exemption under the income or other tax laws of any state or city. The laws of
the several states vary with respect to the taxation of such obligations.
21
<PAGE>
ESTIMATED CASHFLOWS TO UNITHOLDERS
The tables below set forth the estimated monthly distributions of interest,
principal and rebates of Purchased Interest to Unitholders on a per 100 Units
basis. The tables assume no changes in expenses, no changes in the current
interest rates, no exchanges, redemptions, sales or prepayments of the
underlying Securities prior to maturity or expected retirement date and the
receipt of principal upon maturity or expected retirement date. To the extent
the foregoing assumptions change actual distributions will vary.
INSURED NATIONAL TRUST
- -------------------------
Monthly
- ---------
<TABLE>
<CAPTION>
ESTIMATED
ESTIMATED ESTIMATED PURCHASED ESTIMATED
INTEREST PRINCIPAL INTEREST TOTAL
DATES DISTRIBUTION DISTRIBUTION REBATE DISTRIBUTION
<S> <C> <C> <C> <C> <C>
- ------------------------------------------ ------------- ------------- ------------- -------------
Apr 15, 1994 $ 1.78 $ 1.78
May 15, 1994 to Jul 15, 1998 $ 3.56 $ 3.56
Aug 15, 1998 $ 3.56 $ 194.00 $ 1.03 $ 198.59
Sep 15, 1998 to Jun 15, 1999 $ 2.89 $ 2.89
Jul 15, 1999 $ 2.89 $ 194.00 $ 1.92 $ 198.81
Aug 15, 1999 to Nov 15, 2000 $ 2.14 $ 2.14
Dec 15, 2000 $ 1.79 $ 194.00 $ 2.43 $ 198.22
Jan 15, 2001 to Jul 15, 2001 $ 1.46 $ 1.46
Aug 15, 2001 $ 1.46 $ 194.00 $ 2.13 $ 197.59
Sep 15, 2001 to Apr 15, 2002 $ 0.65 $ 0.65
May 15, 2002 $ 0.65 $ 5.82 -- $ 6.47
Jun 15, 2002 $ 0.65 $ 91.18 $ 0.51 $ 92.34
Jul 15, 2002 to Sep 15, 2002 $ 0.31 $ 0.31
Oct 15, 2002 $ 0.31 $ 97.00 $ 0.89 $ 98.20
</TABLE>
INSURED OHIO TRUST
- ---------------------
Monthly
- ---------
<TABLE>
<CAPTION>
ESTIMATED
ESTIMATED ESTIMATED PURCHASED ESTIMATED
INTEREST PRINCIPAL INTEREST TOTAL
DATES DISTRIBUTION DISTRIBUTION REBATE DISTRIBUTION
<S> <C> <C> <C> <C> <C>
- ------------------------------------------ ------------- ------------- ------------- -------------
Apr 15, 1994 $ 1.72 $ 1.72
May 15, 1994 to Apr 15, 1998 $ 3.44 $ 3.44
May 15, 1998 $ 3.44 $ 194.49 $ 0.72 $ 198.65
Jun 15, 1998 to Nov 15, 1999 $ 2.76 $ 2.76
Dec 15, 1999 $ 2.76 $ 194.49 $ 2.64 $ 199.89
Jan 15, 2000 to Nov 15, 2000 $ 2.02 $ 2.02
Dec 15, 2000 $ 2.02 $ 194.49 $ 0.34 $ 196.85
Jan 15, 2001 to Sep 15, 2001 $ 1.35 $ 1.35
Oct 15, 2001 $ 1.35 $ 194.49 $ 1.72 $ 197.56
Nov 15, 2001 to May 15, 2002 $ 0.68 $ 0.68
Jun 15, 2002 $ 0.31 $ 194.49 $ 1.12 $ 195.92
</TABLE>
22
<PAGE>
DESCRIPTION OF MUNICIPAL BOND RATINGS*
STANDARD & POOR'S CORPORATION.--A brief description of the applicable Standard
& Poor's Corporation rating symbols and their meanings follow:
A Standard & Poor's corporate or municipal bond rating is a current assessment
of the creditworthiness of an obligor with respect to a specific debt
obligation. This assessment may take into consideration obligors such as
guarantors, insurers, or lessees.
The bond rating is not a recommendation to purchase, sell or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer and
obtained by Standard & Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in connection with any rating and
may, on occasion, rely on unaudited financial information. The ratings may be
changed, suspended, or withdrawn as a result of changes in, or unavailability
of, such information, or for other circumstances.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default--capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization or other arrangement, under the laws of
bankruptcy and other laws affecting creditors' rights.
AAA--Bonds rated AAA have the highest rating assigned by Standard and Poor's
to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA--Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A--Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than bonds in higher rated
categories.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than for bonds in higher rated
categories.
Plus (+) or Minus (-): The ratings from "AA" to "A" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Provisional Ratings: The letter "p" indicates the rating is provisional. A
provisional rating assumes the successful completion of the project being
financed by the bonds being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, while addressing credit
quality subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise his own judgment with respect to such likelihood and
risk.
- ---------------------------
* As described by the rating company itself.
A-1
<PAGE>
MOODY'S INVESTORS SERVICE, INC.--A brief description of the applicable Moody's
Investors Service, Inc. rating symbols and their meanings follow:
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues. Their safety is so
absolute that with the occasional exception of oversupply in a few specific
instances, characteristically, their market value is affected solely by money
market fluctuations.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risks appear somewhat larger than in Aaa
securities. Their market value is virtually immune to all but money market
influences, with the occasional exception of oversupply in a few specific
instances.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the
future. The market value of A-rated bonds may be influenced to some degree by
economic performance during a sustained period of depressed business
conditions, but, during periods of normalcy, A-rated bonds frequently move in
parallel with Aaa and Aa obligations, with the occasional exception of
oversupply in a few specific instances.
A1--Bonds which are rated A1 offer the maximum in security within their
quality group, can be bought for possible upgrading in quality, and
additionally, afford the investor an opportunity to gauge more precisely the
relative attractiveness of offerings in the marketplace.
Baa--Bonds which are rated Baa are considered as lower medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and, in fact, have speculative characteristics as
well. The market value of Baa-rated bonds is more sensitive to changes in
economic circumstances and, aside from occasional speculative factors applying
to some bonds of this class, Baa market valuations move in parallel with Aaa,
Aa and A obligations during periods of economic normalcy, except in instances
of oversupply.
Conditional Ratings: Bonds rated "Con(-)" are ones for which the security
depends upon the completion of some act or the fulfillment of some condition.
These are bonds secured by (a) earnings of projects under construction, (b)
earnings of projects unseasoned in operation experience, (c) rentals which
begin when facilities are completed, or (d) payments to which some other
limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
Note: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B in certain areas of its bond rating system.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
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PORTFOLIOS
The Trust Funds may be an appropriate investment vehicle for investors who
desire to participate in a portfolio of tax-exempt fixed income securities
with greater diversification than they might be able to acquire individually.
In addition, Municipal Bonds of the type deposited in the Trust Fund are often
not available in small amounts.
The selection of Municipal Bonds for each Trust Fund was based largely upon
the experience and judgment of the Sponsor. In making such selections the
Sponsor considered the following factors: (a) Standard & Poor's or Moody's
ratings of the Municipal Bonds; (b) the price of the Municipal Bonds relative
to other issues of similar quality and maturity; (c) the diversification of
the Municipal Bonds as to purpose of issue; (d) the income to the Unitholders
of the Trust; (e) in the case of insured Trust Funds whether such Bonds were
insured or the availability and cost of insurance for the scheduled payment of
principal and interest on the Municipal Bonds; and (f) the dates of maturity
of the Bonds.
All of the Municipal Bonds in each Trust Fund's portfolio are rated in the
category "BBB" or better (including provisional or conditional ratings) by
Standard & Poor's or "Baa" or better by Moody's. See "Description of Municipal
Bond Ratings" and "The Trust Funds--Portfolios."
All Municipal Bonds deposited in the Trust Funds on the Date of Deposit were
represented by purchase contracts assigned to the Trustee together with cash,
cash equivalents or irrevocable letters of credit issued by a major commercial
bank in the amounts necessary to complete the purchase thereof.
Bonds in certain of the Trust Funds may have been purchased on a "when, as and
if issued" or delayed delivery basis with delivery expected to take place
after the First Settlement Date. See "Notes to Portfolio." Accordingly, the
delivery of such Bonds may be delayed or may not occur. Interest on these
Municipal Bonds begins accruing to the benefit of Unitholders on their
respective dates of delivery. To the extent any Municipal Bonds are actually
delivered to a Trust Fund after their respective expected dates of delivery,
Unitholders who purchase Units in such Trust Fund prior to the date such
"when, as and if issued" or "delayed delivery" Municipal Bonds are actually
delivered to the Trustee would, to the extent such income is not offset by a
reduction in the Trustee's fee (or, to the extent necessary, other expenses),
be required to reduce their tax basis in their Units of such Trust Fund since
the interest accruing on such Bonds during the interval between their purchase
of Units and the actual delivery of such Bonds would, for tax purposes, be
considered a non-taxable return of principal rather than as tax-exempt
interest. The result of such adjustment, if necesssary, would be, during the
first year only, that the Estimated Long-Term Returns may be, and the
Estimated Current Returns would be, slightly lower than those shown herein,
assuming the Trust Fund portfolios and estimated annual expenses do not vary.
See footnote (3) to "Essential Information." Holders of Units will be "at
risk" with respect to these Bonds (i.e., may derive either gain or loss from
fluctuations in the evaluation of such Bonds) from the date they commit for
Units.
The Sponsor and the Trustee shall not be liable in any way for any default,
failure or defect in any Municipal Bond. In the event of a notice that any
Bonds, including "when, as and if issued" Bonds that have been purchased for
the Trust under contracts, will not be delivered ("Failed Bonds"), the Sponsor
is authorized under the Trust Agreement to direct the Trustee to acquire other
bonds ("Replacement Bonds").
The Replacement Bonds must be purchased within 20 days after delivery of the
notice that a contract to deliver a Municipal Bond will not be honored and the
purchase price may not exceed the amount of funds reserved for the purchase of
the Failed Bonds. The Replacement Bonds (i) must be tax-exempt bonds issued by
the appropriate state or counties, municipalities, authorities or political
subdivisions thereof, (ii) must have a fixed maturity date of at least three
years if the Bonds are to be deposited in a trust other than a long-term
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Trust or at least 10 years if the Bonds are to be deposited in a long-term
Trust, (iii) must be purchased at a price that results in a yield to maturity
and a current return at least equal to that of the Failed Bonds as of the Date
of Deposit, (iv) shall not be "when, as and if issued" bonds, (v) must satisfy
the rating criteria for Bonds originally included in such Trust and (vi) in
the case of Insured Trust Funds must be insured. Whenever a Replacement Bond
is acquired for a Trust Fund, the Trustee shall, within five days thereafter,
notify all Unitholders of the Trust Fund of the acquisition of the Replacement
Bond. Once all of the Bonds in a Trust Fund are acquired, the Trustee will
have no power to vary the investments of the Trust Fund, i.e., the Trustee
will have no managerial power to take advantage of market variations to
improve a Unitholder's investment.
If the right of limited substitution described in the preceding paragraphs is
not utilized to acquire Replacement Bonds in the event of a failed contract,
the Sponsor will refund the sales charge attributable to such Failed Bonds to
all Unitholders of the Trust Fund and the Trustee will distribute the
principal, Purchased Interest and Daily Accrued Interest attributable to such
Failed Bonds not more than 30 days after the date on which the Trustee would
have been required to purchase a Replacement Bond. In addition, Unitholders
should be aware that, at the time of receipt of such principal, they may not
be able to reinvest such proceeds in other securities at a yield equal to or
in excess of the yield which such proceeds would have earned for Unitholders
of such Trust Fund.
Whether or not a Replacement Bond is acquired, an amount equal to the accrued
interest (at the coupon rate of the Failed Bonds) will be paid to Unitholders
of the Trust Fund to the date the Sponsor is notified of the failure if the
Sponsor determines not to purchase a Replacement Bond or to the date of
substitution if a Replacement Bond is purchased. All such interest paid to
Unitholders which accrued after the date of settlement for a purchase of Units
will be paid by the Sponsor. In the event a Replacement Bond could not be
acquired by the Trust Fund, the net annual interest income per Unit for such
Trust Fund would be reduced and the Estimated Current Return and Estimated
Long-Term Return might be lowered.
Subsequent to the Date of Deposit, a Municipal Bond may cease to be rated or
its rating may be reduced below the minimum required as of the Date of
Deposit. Neither event requires the elimination of such investment from a
Trust Fund, but may be considered in the Sponsor's determination to direct the
Trustee to dispose of such investment. See "Investment Supervision."
The Sponsor may not alter the portfolio of a Trust Fund except upon the
happening of certain extraordinary circumstances. See "Investment
Supervision." Municipal Bonds in such Trust Fund are subject to optional call
or mandatory redemption pursuant to sinking fund provisions, in each case
prior to their stated maturity. A bond subject to optional call is one which
is subject to redemption or refunding prior to maturity at the option of the
issuer, often at a premium over par. A refunding is a method by which a bond
issue is redeemed, at or before maturity, by the proceeds of a new bond issue.
A bond subject to sinking fund redemption is one which is subject to partial
call from time to time at par with proceeds from a fund accumulated for the
scheduled retirement of a portion of an issue prior to maturity. Special or
extraordinary redemption provisions may provide for redemption at par of all
or a portion of an issue upon the occurrence of certain circumstances, which
may be prior to the optional call dates shown in "The Trust Funds--
Portfolios." Redemption pursuant to optional call provisions is more likely to
occur, and redemption pursuant to special or extraordinary redemption
provisions may occur, when the Bonds have an offering side evaluation which
represents a premium over par, that is, when they are able to be refinanced at
a lower cost. The proceeds from any such call or redemption pursuant to
sinking fund provisions, as well as proceeds from the sale of Municipal Bonds
and from Municipal Bonds which mature in accordance with their terms from a
Trust Fund, unless utilized to pay for Units tendered for redemption, will be
distributed to Unitholders of such Trust Fund and will not be used to purchase
additional Municipal Bonds for the Trust Fund. Accordingly, any such call,
redemption, sale or maturity will reduce the size and diversity of the Trust
Fund and the net annual
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interest income of the Trust Fund and may reduce the Estimated Current Return
and the Estimated Long-Term Return. See "Interest, Estimated Long-Term Return
and Estimated Current Return." The call, redemption, sale or maturity of
Municipal Bonds also may have tax consequences to a Unitholder. See "Federal
Tax Status." Information with respect to the call provisions and maturity
dates of the Municipal Bonds is contained in "The Trust Funds--Portfolios."
Insurance guaranteeing the scheduled payment of principal and interest on all
of the Municipal Bonds in an Insured Trust Fund has been obtained directly by
the issuer. See "Insurance on the Portfolios of the Insured Trust Funds" and
"The Trust Funds--Portfolios." The value of insurance obtained by the issuer
of a Municipal Bond is reflected and included in the market value of such
Bonds. See "Insurance on the Portfolios of the Insured Trust Funds."
Each Unit of a Trust Fund represents an undivided fractional interest in the
Municipal Bonds deposited therein, in the ratio shown under "Essential
Information." Units may be purchased and certificates, if requested, will be
issued in denominations of one Unit or any multiple or fraction thereof,
subject to the Trust's minimum investment requirement of one Unit. Fractions
of Units will be computed to three decimal points. To the extent that Units of
a Trust Fund are redeemed, the principal amount of Municipal Bonds in the
Trust Fund will be reduced and the undivided fractional interest represented
by each outstanding Unit of such Trust Fund will increase. See "Redemption."
GENERAL TRUST INFORMATION
None of the special counsel to the various Trust Funds has expressed any
opinion regarding the completeness or materiality of any matters contained in
this Prospectus other than the tax opinions set forth under "Federal Tax
Status."
Certain of the Bonds in the Trust Funds may be general obligations of a
governmental entity that are backed by the taxing power of such entity. All
other Bonds in the Trusts are revenue bonds payable from the income of a
specific project or authority and are not supported by the issuer's power to
levy taxes. General obligation bonds are secured by the issuer's pledge of its
faith, credit and taxing power for the payment of principal and interest.
Revenue bonds, on the other hand, are payable only from the revenues derived
from a particular facility or class of facilities or, in some cases, from the
proceeds of a special excise or other specific revenue source. There are, of
course, variations in the security of the different Bonds in the Trust Funds,
both within a particular classification and between classifications, depending
on numerous factors.
Certain of the Bonds in the Trust Funds may be obligations of issuers whose
revenues are derived from services provided by hospitals and other health care
facilities, including nursing homes. Ratings of bonds issued for health care
facilities are often based on feasibility studies that contain projections of
occupancy levels, revenues and expenses. A facility's gross receipts and net
income available for debt service will be affected by future events and
conditions including, among other things, demand for services and the ability
of the facility to provide the services required, physicians' confidence in
the facility, management's capabilities, economic developments in the service
area, competition, efforts by insurers and governmental agencies to limit
rates, legislation establishing state rate-setting agencies, expenses, the
cost and possible unavailability of malpractice insurance, the funding of
Medicare, Medicaid and other similar third party payor programs, and
government regulation. Federal legislation has been enacted which implements a
system of prospective Medicare reimbursement which may restrict the flow of
revenues to hospitals and other facilities which are reimbursed for services
provided under the Medicare program. Future legislation or changes in the
areas noted above, among other things, would affect all hospitals to varying
degrees and, accordingly, any adverse changes in these areas may affect the
ability of such issuers to make payments of
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principal and interest on Municipal Bonds held in the portfolios of the Trust
Funds. Such adverse changes also may affect the ratings of the Municipal Bonds
held in the portfolios of the Trust Funds.
Certain of the Bonds in the Trust Funds may be single family mortgage revenue
bonds, which are issued for the purpose of acquiring from originating
financial institutions notes secured by mortgages on residences located within
the issuer's boundaries and owned by persons of low or moderate income.
Mortgage loans are generally partially or completely prepaid prior to their
final maturities as a result of events such as sale of the mortgaged premises,
default, condemnation or casualty loss. Because these Bonds are subject to
extraordinary mandatory redemption in whole or in part from such prepayments
of mortgage loans, a substantial portion of such Bonds will probably be
redeemed prior to their scheduled maturities or even prior to their ordinary
call dates. The redemption price of such issues may be more or less than the
offering price of such Bonds. Extraordinary mandatory redemption without
premium could also result from the failure of the originating financial
institutions to make mortgage loans in sufficient amounts within a specified
time period or, in some cases, from the sale by the Bond issuer of the
mortgage loans. Failure of the originating financial institutions to make
mortgage loans would be due principally to the interest rates on mortgage
loans funded from other sources becoming competitive with the interest rates
on the mortgage loans funded with the proceeds of the single family mortgage
revenue bonds. Additionally, unusually high rates of default on the underlying
mortgage loans may reduce revenues available for the payment of principal of
or interest on such mortgage revenue bonds. Single family mortgage revenue
bonds issued after December 31, 1980 were issued under Section 103A of the
Internal Revenue Code of 1954, which Section contains certain ongoing
requirements relating to the use of the proceeds of such Bonds in order for
the interest on such Bonds to retain its tax-exempt status. In each case, the
issuer of the Bonds has covenanted to comply with applicable ongoing
requirements and bond counsel to such issuer has issued an opinion that the
interest on the Bonds is exempt from Federal income tax under existing laws
and regulations. There can be no assurances that the ongoing requirements will
be met. The failure to meet these requirements could cause the interest on the
Bonds to become taxable, possibly retroactively from the date of issuance.
Certain of the Bonds in the Trust Funds may be obligations of issuers whose
revenues are primarily derived from mortgage loans to housing projects for low
to moderate income families. The ability of such issuers to make debt service
payments will be affected by events and conditions affecting financed
projects, including, among other things, the achievement and maintenance of
sufficient occupancy levels and adequate rental income, increases in taxes,
employment and income conditions prevailing in local labor markets, utility
costs and other operating expenses, the managerial ability of project
managers, changes in laws and governmental regulations, the appropriation of
subsidies and social and economic trends affecting the localities in which the
projects are located. The occupancy of housing projects may be adversely
affected by high rent levels and income limitations imposed under Federal and
state programs. Like single family mortgage revenue bonds, multi-family
mortgage revenue bonds are subject to redemption and call features, including
extraordinary mandatory redemption features, upon prepayment, sale or
non-origination of mortgage loans as well as upon the occurrence of other
events. Certain issuers of single or multi-family housing bonds have
considered various ways to redeem bonds they have issued prior to the stated
first redemption dates for such bonds. In connection with the housing Bonds
held by the Trust Funds, the Sponsor has not had any direct communications
with any of the issuers thereof, but at the Date of Deposit it is not aware
that any of the respective issuers of such Bonds are actively considering the
redemption of such Bonds prior to their respective stated initial call dates.
However, there can be no assurance that an issuer of a Bond in the Trusts will
not attempt to so redeem a Bond in the Trust Funds.
Certain of the Bonds in the Trust Funds may be obligations of issuers whose
revenues are derived from the sale of water and/or sewerage services. Water
and sewerage bonds are generally payable from user fees.
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Problems faced by such issuers include the ability to obtain timely and
adequate rate increases, a decline in population resulting in decreased user
fees, the difficulty of financing large construction programs, the limitations
on operations and increased costs and delays attributable to environmental
considerations, the increasing difficulty of obtaining or discovering new
supplies of fresh water, the effect of conservation programs and the impact of
"no-growth" zoning ordinances. Issuers may have experienced these problems in
varying degrees.
Certain of the Bonds in the Trust Funds may be obligations of issuers whose
revenues are primarily derived from the sale of electric energy or natural
gas. Utilities are generally subject to extensive regulation by state utility
commissions which, among other things, establish the rates which may be
charged and the appropriate rate of return on an approved asset base. The
problems faced by such issuers include the difficulty in obtaining approval
for timely and adequate rate increases from the governing public utility
commission, the difficulty in financing large construction programs, the
limitations on operations and increased costs and delays attributable to
environmental considerations, increased competition, recent reductions in
estimates of future demand for electricity in certain areas of the country,
the difficulty of the capital market in absorbing utility debt, the difficulty
in obtaining fuel at reasonable prices and the effect of energy conservation.
Issuers may have experienced these problems in varying degrees. In addition,
Federal, state and municipal governmental authorities may from time to time
review existing and impose additional regulations governing the licensing,
construction and operation of nuclear power plants, which may adversely affect
the ability of the issuers of such Bonds to make payments of principal and/or
interest on such Bonds.
Certain of the Bonds in the Trust Funds may be industrial revenue bonds
("IRBs"), including pollution control revenue bonds, which are tax-exempt
securities issued by states, municipalities, public authorities or similar
entities to finance the cost of acquiring, constructing or improving various
industrial projects. These projects are usually operated by corporate
entities. Issuers are obligated only to pay amounts due on the IRBs to the
extent that funds are available from the unexpended proceeds of the IRBs or
receipts or revenues of the issuer under an arrangement between the issuer and
the corporate operator of a project. The arrangement may be in the form of a
lease, installment sale agreement, conditional sale agreement or loan
agreement, but in each case the payments to the issuer are designed to be
sufficient to meet the payments of amounts due on the IRBs. Regardless of the
structure, payment of IRBs is solely dependent upon the creditworthiness of
the corporate operator of the project or corporate guarantor. Corporate
operators or guarantors may be affected by many factors which may have an
adverse impact on the credit quality of the particular company or industry.
These include cyclicality of revenues and earnings, regulatory and
environmental restrictions, litigation resulting from accidents or
environmentally-caused illnesses, extensive competition and financial
deterioration resulting from leveraged buy-outs or takeovers. The IRBs in the
Trust Funds may be subject to special or extraordinary redemption provisions
which may provide for redemption at par or, with respect to original issue
discount bonds, at issue price plus the amount of original issue discount
accreted to the redemption date plus, if applicable, a premium. The Sponsor
cannot predict the causes or likelihood of the redemption of IRBs or other
Bonds in the Trust Funds prior to the stated maturity of such Bonds.
Certain of the Bonds in the Trust Funds may be obligations which are payable
from and secured by revenues derived from the ownership and operation of
facilities such as airports, bridges, turnpikes, port authorities, convention
centers and arenas. The major portion of an airport's gross operating income
is generally derived from fees received from signatory airlines pursuant to
use agreements which consist of annual payments for leases, occupancy of
certain terminal space and service fees. Airport operating income may
therefore be affected by the ability of the airlines to meet their obligations
under the use agreements. The air transport industry is experiencing
significant variations in earnings and traffic, due to increased competition,
excess
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capacity, increased costs, deregulation, traffic constraints and other
factors, and several airlines are experiencing severe financial difficulties.
The Sponsor cannot predict what effect these industry conditions may have on
airport revenues which are dependent for payment on the financial condition of
the airlines and their usage of the particular airport facility. Similarly,
payment on Bonds related to other facilities is dependent on revenues from the
projects, such as user fees from ports, tolls on turnpikes and bridges and
rents from buildings. Therefore, payment may be adversely affected by
reduction in revenues due to such factors as increased cost of maintenance,
decreased use of a facility, lower cost of alternative modes of
transportation, scarcity of fuel and reduction or loss of rents.
Certain of the Bonds in the Trust Funds may be obligations of issuers which
are, or which govern the operation of, schools, colleges and universities and
whose revenues are derived mainly from ad valorem taxes, or for higher
education systems, from tuition, dormitory revenues, grants and endowments.
General problems relating to school bonds include litigation contesting the
state constitutionality of financing public education in part from ad valorem
taxes, thereby creating a disparity in educational funds available to schools
in wealthy areas and schools in poor areas. Litigation or legislation on this
issue may affect the sources of funds available for the payment of school
bonds in the Trusts. General problems relating to college and university
obligations would include the prospect of a declining percentage of the
population consisting of "college" age individuals, possible inability to
raise tuition and fees sufficiently to cover increased operating costs, the
uncertainty of continued receipt of Federal grants and state funding and new
government legislation or regulations which may adversely affect the revenues
or costs of such issuers. All of such issuers have been experiencing certain
of these problems in varying degrees.
Certain of the Bonds in the Trust Funds may be Urban Redevelopment Bonds
("URBs"). URBs have generally been issued under bond resolutions pursuant to
which the revenues and receipts payable under the arrangements with the
operator of a particular project have been assigned and pledged to purchasers.
In some cases, a mortgage on the underlying project may have been granted as
security for the URBs. Regardless of the structure, payment of the URBs is
solely dependent upon the creditworthiness of the operator of the project.
Certain of the Bonds in the Trust Funds may be lease revenue bonds whose
revenues are derived from lease payments made by a municipality or other
political subdivision which is leasing equipment or property for use in its
operation. The risks associated with owning Bonds of this nature include the
possibility that appropriation of funds for a particular project or equipment
may be discontinued. The Sponsor cannot predict the likelihood of
nonappropriation of funds for these types of lease revenue Bonds.
Certain of the Bonds in the Trust Funds may be sales and/or use tax revenue
bonds whose revenues are derived from the proceeds of a special sales or use
tax. Such taxes are generally subject to continuing Legislature approval.
Payments may be adversely affected by reduction of revenues due to decreased
use of a facility or decreased sales.
Certain of the Bonds in the Trust Funds may be "zero coupon" bonds, i.e., an
original issue discount bond that does not provide for the payment of current
interest. Zero coupon bonds are purchased at a deep discount because the buyer
receives only the right to receive a final payment at the maturity of the bond
and does not receive any periodic interest payments. The effect of owning deep
discount bonds which do not make current interest payments (such as the zero
coupon bonds) is that a fixed yield is earned not only on the original
investment but also, in effect, on all discount earned during the life of such
obligation. This implicit reinvestment of earnings at the same rate eliminates
the risk of being unable to reinvest the income on such obligation at a rate
as high as the implicit yield on the discount obligation, but at the same time
eliminates the holder's ability to reinvest at higher rates in the future. For
this reason, zero coupon bonds are subject to
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substantially greater price fluctuations during periods of changing market
interest rates than are securities of comparable quality which pay interest
currently. For the Federal tax consequences of original issue discount bonds
such as the zero coupon bonds, see "Federal Tax Status."
Investors should be aware that many of the Bonds in the Trust Funds are
subject to continuing requirements such as the actual use of Bond proceeds or
manner of operation of the project financed from Bond proceeds that may affect
the exemption of interest on such Bonds from Federal income taxation. Although
at the time of issuance of each of the Bonds in the Trusts an opinion of bond
counsel was rendered as to the exemption of interest on such obligations from
Federal income taxation, there can be no assurance that the respective issuers
or other obligors on such obligations will fulfill the various continuing
requirements established upon issuance of the Bonds. A failure to comply with
such requirements may cause a determination that interest on such obligations
is subject to Federal income taxation, perhaps even retroactively from the
date of issuance of such Bonds, thereby reducing the value of the Bonds and
subjecting Unitholders to unanticipated tax liabilities.
Federal bankruptcy statutes relating to the adjustment of debts of political
subdivisions or authorities of states of the United States provide that, in
certain circumstances, such subdivisions or authorities may be authorized to
initiate bankruptcy proceedings without prior notice to or consent of
creditors, which proceedings could result in material and adverse modification
or alteration of the rights of holders of obligations issued by such
subdivisions or authorities.
Certain of the Bonds in the Trust Funds may represent "moral obligations" of a
governmental entity other than the issuer. In the event that the issuer of a
Municipal Bond defaults in the repayment thereof, the governmental entity
lawfully may, but is not obligated to, discharge the obligation of the issuer
to repay such Municipal Bond.
To the best of the Sponsor's knowledge, there is no litigation pending as of
the Date of Deposit in respect of any Municipal Bond which might reasonably be
expected to have a material adverse effect on the Trusts or any Trust Fund. At
any time after the Date of Deposit, litigation may be instituted on a variety
of grounds with respect to the Municipal Bonds. Although the Sponsor is unable
to predict whether any such litigation may be instituted, or if instituted,
whether such litigation might have a material adverse effect on any Trust
Fund, the Trust Funds receive copies of the opinions of bond counsel given at
the time of original delivery of each of the Municipal Bonds to the effect
that the Municipal Bonds have been validly issued and that the interest
thereon is exempt from Federal income taxes.
INSURANCE ON THE PORTFOLIOS OF THE INSURED TRUST FUNDS
All Municipal Bonds in the portfolios of the Insured Trust Funds are insured
as to the scheduled payment of interest and principal by the issuer from
Municipal Bond Investors Assurance Corporation or other insurers. See "The
Trust Funds--Portfolios" and the Notes thereto. The premium for any insurance
policy or policies obtained by an issuer of Municipal Bonds has been paid in
advance by such issuer and any such policy or policies are non-cancellable and
will remain in force so long as the Municipal Bonds so insured are outstanding
and the insurer and/or insurers thereof remain in business. Where Municipal
Bond insurance is obtained by the issuer directly from Municipal Bond
Investors Assurance Corporation or another insurer, no premiums for insurance
are paid by an Insured Trust Fund. If the provider of an original issuance
insurance policy is unable to meet its obligations under such policy or if the
rating assigned to the claims-paying ability of any such insurer deteriorates,
no other insurer has an obligation to insure any issue adversely affected by
either of the above described events.
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The aforementioned insurance guarantees the scheduled payment of principal and
interest on all of the Municipal Bonds in an Insured Trust Fund. It does not
guarantee the market value of the Municipal Bonds or the value of the Units of
the Insured Trust Fund. Insurance obtained by the issuer of a Municipal Bond
is effective so long as the Bond is outstanding, whether or not held by an
Insured Trust Fund. Therefore, any such insurance may be considered to
represent an element of market value in regard to the Bonds thus insured, but
the exact effect, if any, of this insurance on such market value cannot be
predicted.
Financial Guaranty Insurance Company. Financial Guaranty is a wholly-owned
subsidiary of FGIC Corporation (the "Corporation"), a Delaware holding
company. The Corporation is a wholly-owned subsidiary of General Electric
Capital Corporation ("GECC"). Neither the Corporation nor GECC is obligated to
pay the debts or the claims against Financial Guaranty. Financial Guaranty is
domiciled in the State of New York and is subject to regulation by the State
of New York Insurance Department. As of December 31, 1993, the total capital
and surplus of Financial Guaranty was approximately $777,000,000. Copies of
Financial Guaranty's financial statements, prepared on the basis of statutory
accounting principles, and the Corporation's financial statements, prepared on
the basis of generally accepted accounting principles, may be obtained by
writing to Financial Guaranty at 115 Broadway, New York, New York 10006,
Attention: Communications Department (telephone number is (212) 312-3000) or
to the New York State Insurance Department at 160 West Broadway, 18th Floor,
New York, New York 10013, Attention: Property Companies Bureau (telephone
number (212) 621-0389).
In addition, Financial Guaranty Insurance Company is currently authorized to
write insurance in 50 states and the District of Columbia.
The information relating to Financial Guaranty contained above has been
furnished by such corporation. The financial information contained herein with
respect to such corporation is unaudited but appears in reports or other
materials filed with state insurance regulatory authorities and is subject to
audit and review by such authorities. No representation is made herein as to
the accuracy or adequacy of such information or as to the absence of material
adverse changes in such information subsequent to the date thereof but the
Sponsor is not aware that the information herein is inaccurate or incomplete.
AMBAC Indemnity Corporation. AMBAC Indemnity Corporation ("AMBAC") is a
Wisconsin-domiciled stock insurance company, regulated by the Office of the
Commissioner of Insurance of the State of Wisconsin, and licensed to do
business in 50 states, the District of Columbia and the Commonwealth of Puerto
Rico, with admitted assets (unaudited) of approximately $1,936,000,000 and
statutory capital (unaudited) of approximately $1,096,000,000 as of September
30, 1993. Statutory capital consists of AMBAC policyholders' surplus and
statutory contingency reserve. AMBAC is a wholly owned subsidiary of AMBAC
Inc., a 100% publicly-held company. Moody's Investors Service, Inc. and
Standard & Poor's Corporation have both assigned a AAA claims-paying ability
rating to AMBAC. Copies of AMBAC's financial statements prepared in accordance
with statutory accounting standards are available from AMBAC. The address of
AMBAC's administrative offices and its telephone number are One State Street
Plaza, 17th Floor, New York, New York 10004 and (212) 668-0340. AMBAC has
entered into quota share reinsurance agreements under which a percentage of
the insurance underwritten pursuant to certain municipal bond insurance
programs of AMBAC has been and will be assumed by a number of foreign and
domestic unaffiliated reinsurers.
Municipal Bond Investors Assurance Corporation. Municipal Bond Investors
Assurance Corporation ("MBIA Corporation") is the principal operating
subsidiary of MBIA, Inc., a New York Stock Exchange listed company. MBIA, Inc.
is not obligated to pay the debts of or claims against MBIA Corporation. MBIA
Corporation, which commenced municipal bond insurance operations on January 5,
1987, is a limited
A-10
<PAGE>
liability corporation rather than a several liability association. MBIA
Corporation is domiciled in the State of New York and licensed to do business
in all 50 states, the District of Columbia and the Commonwealth of Puerto
Rico.
As of December 31, 1993, MBIA had admitted assets of $3.1 billion (unaudited),
total liabilities of $2.1 billion (unaudited), and total capital and surplus
of $978 million (unaudited) determined in accordance with statutory accounting
practices prescribed or permitted by insurance regulatory authorities.
Standard & Poor's Corporation has rated the claims paying ability of MBIA
"AAA". Copies of MBIA Corporation's financial statements prepared in
accordance with statutory accounting practices are available from MBIA
Corporation. The address of MBIA Corporation is 113 King Street, Armonk, New
York 10504.
Effective December 31, 1989, MBIA Inc. acquired Bond Investors Group, Inc. On
January 5, 1990, the Insurer acquired all of the outstanding stock of Bond
Investors Group, Inc., the parent of BIG, now known as MBIA Insurance Corp. of
Illinois. Through a reinsurance agreement, BIG has ceded all of its net
insured risks, as well as its unearned premium and contingency reserves, to
the Insurer and the Insurer has reinsured BIG's net outstanding exposure.
Moody's Investors Service rates all bond issues insured by MBIA "Aaa" and
short-term loans "MIG1," both designated to be of the highest quality.
Standard & Poor's Corporation rates all new issues insured by MBIA "AAA."
Financial Security Assurance. Financial Security Assurance ("Financial
Security" or "FSA") is a monoline insurance company incorporated on March 16,
1984 under the laws of the State of New York. The operations of Financial
Security commenced on July 25, 1985, and Financial Security received its New
York State insurance license on September 23, 1985. Financial Security and its
two wholly owned subsidiaries are licensed to engage in financial guaranty
insurance business in 49 states, the District of Columbia and Puerto Rico.
Financial Security and its subsidiaries are engaged exclusively in the
business of writing financial guaranty insurance, principally in respect of
asset-backed and other collateralized securities offered in domestic and
foreign markets. Financial Security and its subsidiaries also write financial
guaranty insurance in respect of municipal and other obligations and reinsure
financial guaranty insurance policies written by other leading insurance
companies. In general, financial guaranty insurance consists of the issuance
of a guaranty of scheduled payments of an issuer's securities, thereby
enhancing the credit rating of these securities, in consideration for payment
of a premium to the insurer.
Financial Security is approximately 91.6% owned by U S West, Inc. and 8.4%
owned by The Tokio Marine and Fire Insurance Co., Ltd. ("Tokio Marine").
Neither U S WEST, Inc. nor Tokio Marine is obligated to pay the debts of or
the claims against Financial Security. Financial Security is domiciled in the
State of New York and is subject to regulation by the State of New York
Insurance Department.
As of March 31, 1993, the total policyholders' surplus and contingency
reserves and the total unearned premium reserve, respectively, of Financial
Security and its consolidated subsidiaries were, in accordance with statutory
accounting principles, approximately $479,110,000 (unaudited) and $220,078,000
(unaudited), and the total shareholders' equity and the unearned premium
reserve, respectively, of Financial Security and its consolidated subsidiaries
were, in accordance with generally accepted accounting principles,
approximately $628,119,000 (unaudited) and $202,493,000 (unaudited).
Copies of Financial Security's financial statements may be obtained by writing
to Financial Security at 350 Park Avenue, New York, New York, 10022, Attention
Communications Department. Financial Security's telephone number is (212)
826-0100.
A-11
<PAGE>
Pursuant to an intercompany agreement, liabilities on financial guaranty
insurance written by Financial Security or either of its subsidiaries are
reinsured among such companies at an agreed-upon percentage substantially
proportional to their respective capital, surplus and reserves, subject to
applicable statutory risk limitations. In addition, Financial Security
reinsures a portion of its liabilities under certain of its financial guaranty
insurance policies with unaffiliated reinsurers under various quota share
treaties and on a transaction-by-transaction basis. Such reinsurance is
utilized by Financial Security as a risk management device and to comply with
certain statutory and rating agency requirements; it does not alter or limit
Financial Security's obligations under any financial guaranty insurance
policy.
Financial Security's claims-paying ability is rated "Aaa" by Moody's Investors
Service, Inc., and "AAA" by Standard & Poor's Corporation, Nippon Investors
Service Inc., Duff & Phelps Inc. and Australian Ratings Pty. Ltd. Such ratings
reflect only the views of the respective rating agencies, are not
recommendations to buy, sell or hold securities and are subject to revision or
withdrawal at any time by such rating agencies.
Capital Guaranty Insurance Company. Capital Guaranty Insurance Company
("Capital Guaranty" or "CGIC") Capital Guaranty Insurance Company is a
"Aaa/AAA" rated monoline stock insurance company incorporated in the State of
Maryland, and is a wholly owned subsidiary of Capital Guaranty Corporation, a
Maryland insurance holding company. Capital Guaranty Corporation is a publicly
owned company whose shares are traded on the New York Stock Exchange.
Capital Guaranty Insurance Company is authorized to provide insurance in 49
states, the District of Columbia and three U.S. territories. Capital Guaranty
focuses on insuring municipal securities and provides policies which guaranty
the timely payment of principal and interest when due for payment on new issue
and secondary market issue municipal bond transactions. Capital Guaranty's
claims-paying ability is rated "Triple-A" by both Moody's and Standard &
Poor's.
As of September 30, 1993, Capital Guaranty had $13.6 billion in net exposure
outstanding. The total statutory policyholders' surplus and contingency
reserve of Capital Guaranty was $181,383,432 (unaudited) and the total
admitted assets were $270,021,126 (unaudited) as reported to the Insurance
Department of the State of Maryland as of September 30, 1993.
Financial statements for Capital Guaranty Insurance Company, that have been
prepared in accordance with statutory insurance accounting standards, are
available upon request. The address of Capital Guaranty's headquarters is
Steuart Tower, 22nd Floor, One Market Plaza, San Francisco, CA 94105-1413 and
the telephone number is (415) 995-8000.
Because the Municipal Bonds are insured as to the scheduled payment of
principal and interest and on the basis of the financial condition and the
method of operation of the insurance companies referred to above, Standard &
Poor's Corporation has assigned to the each of the Insured Trust Fund's Units
its "AAA" investment rating. These are the highest ratings assigned to
securities by such rating agencies. See "Description of Municipal Bond
Ratings." These ratings should not be construed as an approval of the offering
of the Units by Standard & Poor's Corporation or as a guarantee of the market
value of an Insured Trust Fund or the Units thereof. There is no guarantee
that the "AAA" investment rating will be maintained.
Bonds in an Insured Trust Fund for which insurance has been obtained by the
issuer (all of which were rated "AAA" by Standard & Poor's Corporation and/or
"Aaa" by Moody's Investors Service, Inc.) may or may not have a higher yield
than uninsured bonds rated "AAA" by Standard & Poor's Corporation or "Aaa" by
Moody's Investors Service, Inc. In selecting Municipal Bonds for the
portfolios of an Insured Trust Fund, the Sponsor has applied the criteria
hereinbefore described.
A-12
<PAGE>
Chapman and Cutler, counsel for the Sponsor, has given an opinion to the
effect that the payment of insurance proceeds representing maturing interest
on defaulting municipal obligations paid by Financial Guaranty or another
insurer would be excludable from Federal gross income if, and to the same
extent as, such interest would have been so excludable if paid by the issuer
of the defaulted obligations. See "Federal Tax Status."
DISTRIBUTION REINVESTMENT
Each Unitholder of a Trust Fund may elect to have distributions of principal
(including capital gains, if any) or interest or both automatically invested
without charge in shares of any other mutual fund underwritten or advised by
Kemper Financial Services, Inc., an affiliate of the Sponsor, (the "Kemper
Funds") which are registered in the Unitholder's state of residence, other
than those Kemper Funds sold with a contingent deferred sales charge. Since
the portfolio securities and investment objectives of such Kemper Funds may
differ significantly from that of the Trust Funds, Unitholders should
carefully consider the consequences, including the fact that distributions
from such Kemper Funds may be taxable, before selecting such Kemper Funds for
reinvestment. Detailed information with respect to the investment objectives
and the management of the Funds is contained in their respective prospectuses,
which can be obtained from any appropriate Trust Fund Underwriter upon
request. An investor should read the prospectus of the reinvestment fund
selected prior to making the election to reinvest. Unitholders who desire to
have such distributions automatically reinvested should inform their broker at
the time of purchase or should file with the Program Agent referred to below a
written notice of election.
Unitholders who are receiving distributions in cash may elect to participate
in distribution reinvestment by filing with the Program Agent an election to
have such distributions reinvested without charge. Such election must be
received by the Program Agent at least ten days prior to the Record Date
applicable to any distribution in order to be in effect for such Record Date.
Any such election shall remain in effect until a subsequent notice is received
by the Program Agent. See "Unitholders--Distributions to Unitholders."
The Program Agent is Investors Fiduciary Trust Company. All inquiries
concerning participation in distribution reinvestment should be directed to
the Kemper Service Company, service agent for the Program Agent, at P.O. Box
419430, Kansas City, Missouri 64173-0216, telephone (800) 422-2848.
INTEREST, ESTIMATED LONG-TERM RETURN AND ESTIMATED CURRENT RETURN
As of the opening of business on the Date of Deposit, the Estimated Long-Term
Return and the Estimated Current Return, if applicable, for each Trust Fund
were as set forth in the "Essential Information" for each Trust. Estimated
Current Return is calculated by dividing the estimated net annual interest
income per Unit by the Public Offering Price. The estimated net annual
interest income per Unit will vary with changes in fees and expenses of the
Trustee, the Sponsor and the Evaluator and with the principal prepayment,
redemption, maturity, exchange or sale of the Bonds while the Public Offering
Price will vary with changes in the offering price of the underlying Bonds;
therefore, there is no assurance that the present Estimated Current Return
will be realized in the future. Estimated Long-Term Return is calculated using
a formula which (1) takes into consideration, and determines and factors in
the relative weightings of, the market values, yields (which takes into
account the amortization of premiums and the accretion of discounts) and
estimated retirements of all of the Bonds in the Trust and (2) takes into
account the expenses and sales charge associated with each Trust Unit. Since
the market values and estimated retirements of the Bonds and the expenses of
the Trust will change, there is no assurance that the present Estimated
Long-Term Return will be realized in the future. Estimated Current Return and
Estimated Long-Term Return are expected to differ because the calculation of
A-13
<PAGE>
Estimated Long-Term Return reflects the estimated date and amount of principal
returned while Estimated Current Return calculations include only net annual
interest income and Public Offering Price.
In order to acquire certain of the Municipal Bonds contracted for by a Trust
Fund, it may be necessary for the Sponsor or Trustee to pay on the dates for
delivery of such Municipal Bonds amounts covering accrued interest on such
Municipal Bonds which exceed the amount which will be made available in the
letter of credit furnished by the Sponsor on the Date of Deposit. The Trustee
has agreed to pay any amounts necessary to cover any such excess and will be
reimbursed therefor, without interest, when funds become available from
interest payments on the Municipal Bonds deposited in that Trust Fund.
PUBLIC OFFERING OF UNITS
PUBLIC OFFERING PRICE. Units of each Trust Fund are offered at the Public
Offering Price thereof. During the initial offering period, the Public
Offering Price per Unit is equal to the aggregate of the offering side
evaluations of the Municipal Bonds in a Trust Fund (as determined, pursuant to
the terms of a contract with the Evaluator, by Muller Data Corporation, a
non-affiliated firm regularly engaged in the business of evaluating, quoting
or appraising comparable securities), plus or minus a pro rata share of (a)
cash, if any, in the Principal Account held or owned by a Trust Fund, (b)
Purchased Interest and (c) Daily Accrued Interest plus the applicable sales
charge referred to in the table below divided by the number of outstanding
Units of such Trust Fund. The Public Offering Price for secondary market
transactions, on the other hand, is based on the bid side evaluations of the
Municipal Bonds in a Trust Fund as determined by Kenny Information Systems,
Inc. plus or minus (a) cash, if any, in the Principal Account held or owned by
the Trust Fund, (b) Purchased Interest and (c) Daily Accrued Interest plus a
sales charge based upon the dollar weighted average maturity of the Trust
Fund.
The sales charge per Unit will be reduced during the initial offering period
pursuant to the following graduated scale:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE YEARS TO MATURITY
------------------------------------------------------------------------------------
0 TO 7.49 7.5 TO 14.99 15 OR MORE
------------------------- ------------------------- -------------------------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF PERCENT OF PERCENT OF
OFFERING NET AMOUNT OFFERING NET AMOUNT OFFERING NET AMOUNT
NUMBER OF UNITS PRICE INVESTED PRICE INVESTED PRICE INVESTED
--------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
1 to 9,999 Units......... 3.0 % 3.093 % 3.9 % 4.058 % 4.2 % 4.384 %
10,000 to 24,999 Units... 2.8 2.881 3.7 3.842 4.0 4.167
25,000 to 49,999 Units... 2.6 2.669 3.5 3.627 3.8 3.950
50,000 to 99,999 Units... 2.5 2.564 3.3 3.413 3.5 3.627
100,000 or more Units.... 1.8 1.883 2.0 2.001 2.2 2.249
</TABLE>
As indicated above, in connection with secondary market transactions the sales
charge is based upon the dollar weighted average maturity of the Trust Funds
and is determined in accordance with the table set forth below. For purposes
of this computation, Bonds will be deemed to mature on their expressed
maturity dates unless: (a) the Bonds have been called for redemption or funds
or securities have been placed in escrow to redeem them on an earlier call
date, in which case such call date will be deemed to be the date upon which
they mature; or (b) such Bonds are subject to a "mandatory tender", in which
case such mandatory tender will be deemed to be the date upon which they
mature. The effect of this method of sales charge computation will be that
different sales charge rates will be applied to the Trust Funds based upon the
dollar weighted average maturity of such Trust Fund's portfolio, in accordance
with the following schedule:
A-14
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF PERCENT OF NET
PUBLIC AMOUNT
YEARS TO MATURITY OFFERING PRICE INVESTED
<S> <C> <C>
-------------- --------------
0 to .99 years.............................. 0.00 % 0.000 %
1 to 3.99 years............................. 2.00 2.041
4 to 7.99 years............................. 3.50 3.627
8 to 14.99 years............................ 4.50 4.712
15 or more years............................ 5.50 5.820
</TABLE>
In connection with secondary market transactions the sales charge per Unit
will be reduced as set forth below:
<TABLE>
<CAPTION>
SECONDARY
-------------------------------------
YEARS TO MATURITY*
4 TO 7.99 8 TO 14.99 15 OR MORE
AMOUNT OF INVESTMENT -------------------------------------
SALES CHARGE (% OF PUBLIC OFFERING
PRICE)
<S> <C> <C> <C> <C>
$1,000 to $99,999............................ 3.50 % 4.50 % 5.50 %
$100,000 to $499,999......................... 3.25 4.25 5.00
$500,000 to $999,999......................... 3.00 4.00 4.50
$1,000,000 or more........................... 2.75 3.75 4.00
</TABLE>
- ---------------------------
* If the dollar weighted average maturity of the Trust Fund is from 1 to
3.99 years the sales charge is 2% and 1.5% of the Public Offering Price
for purchases of $1,000 to $249,999 and $250,000 or more, respectively.
The reduced sales charges resulting from quantity discounts as shown on the
tables above will apply to all purchases of Units on any one day by the same
purchaser from the same Underwriter or dealer and for this purpose, purchases
of Units of the Trust Fund will be aggregated with concurrent purchases of
Units of any other unit investment trust that may be offered by the Sponsor.
Additionally, Units purchased in the name of a spouse or child (under 21) of
such purchaser will be deemed to be additional purchases by such purchaser.
The reduced sales charges will also be applicable to a trust or other
fiduciary purchasing for a single trust estate or single fiduciary account.
The Sponsor intends to permit officers, directors and employees of the Sponsor
and Evaluator and, in the sole discretion of the Sponsor, registered
representatives of selling firms to purchase Units of the Trust without a
sales charge, although a transaction processing fee may be imposed on such
trades.
Had the Units of the Trust Funds been available for sale at the opening of
business on the Date of Deposit, the Public Offering Prices would have been as
shown under "Essential Information." The Public Offering Price per Unit of a
Trust Fund on the date of the Prospectus or on any subsequent date will vary
from the amount stated under "Essential Information" in accordance with
fluctuations in the prices of the underlying Municipal Bonds and the amount of
accrued interest on the Units. On the Date of Deposit, pursuant to an
exemptive order from the Securities and Exchange Commission, the Public
Offering Price at which Units will be sold will not exceed the price
determined as of the opening of business on the Date of Deposit as shown under
"Essential Information", however, should the value of the underlying Bonds
decline, purchasers will, of course, be given the benefit of such lower price.
The aggregate bid and offering side evaluations of the Municipal Bonds shall
be determined (a) on the basis of current bid or offering prices of the
Municipal Bonds, (b) if bid or offering prices are not available for any
particular Municipal Bond, on the basis of current bid or offering prices for
comparable bonds, (c) by determining the value of Municipal Bonds on the bid
or offer side of the market by appraisal, or (d) by any combination of the
above. The value of insurance obtained by an issuer of Municipal Bonds is
reflected and included in the market value of such Municipal Bonds.
The Evaluator will consider the ability of the insurer of such Bonds, to meet
its commitments. For example, if an Insured Trust were to hold Municipal Bonds
of a municipality which had significantly deteriorated in credit quality, the
Evaluator would first consider in its evaluation the market price of the
Municipal Bonds at their lower credit rating. The Evaluator would also
attribute a value to the insurance feature of such Municipal Bonds which would
be equal to the difference between the market value of such Municipal Bonds
and the market value of bonds of a similar nature which were of investment
grade quality. It is the position of the Sponsor that this is a fair method of
valuing insured Municipal Bonds and reflects a proper valuation
A-15
<PAGE>
method in accordance with the provisions of the Investment Company Act of
1940. For a description of the circumstances under which a full or partial
suspension of the right of Unitholders to redeem their Units may occur, see
"Redemption."
The foregoing evaluations and computations shall be made as of the evaluation
time stated under "Essential Information," on each business day commencing
with the Date of Deposit of the Municipal Bonds, effective for all sales made
during the preceding 24-hour period.
The interest on the Municipal Bonds deposited in each Trust Fund, less the
related estimated fees and expenses, is estimated to accrue in the annual
amounts per Unit set forth under "Essential Information." The amount of net
interest income which accrues per Unit may change as Municipal Bonds mature or
are redeemed, exchanged or sold, or as the expenses of a Trust Fund change or
the number of outstanding Units of such Trust Fund changes.
Although payment is normally made five business days following the order for
purchase, payment may be made prior thereto. A person will become the owner of
Units on the First Settlement Date or any date of settlement thereafter
provided payment has been received. Cash, if any, made available to the
Sponsor prior to the date of settlement for the purchase of Units may be used
in the Sponsor's business and may be deemed to be a benefit to the Sponsor,
subject to the limitations of the Securities Exchange Act of 1934. If a
Unitholder desires to have certificates representing Units purchased, such
certificates will be delivered as soon as possible following his written
request therefor. For information with respect to redemption of Units
purchased, but as to which certificates requested have not been received, see
"Redemption" below.
PURCHASED AND DAILY ACCRUED INTEREST. Accrued interest consists of two
elements. The first element arises as a result of accrued interest which is
the accumulation of unpaid interest on a bond from the later of the last day
on which interest thereon was paid or the date of original issuance of the
bond. Interest on the coupon Bonds in the Trust Fund is paid semi-annually to
the Trust. A portion of the aggregate amount of such accrued interest on the
Bonds in the Trust to the First Settlement Date of the Trust is referred to
herein as "Purchased Interest." Included in the Public Offering Price of the
Trust Units is the Purchased Interest. In an effort to reduce the amount of
Purchased Interest which would otherwise have to be paid by Unitholders, the
Trustee may advance a portion of the accrued interest to the Sponsor as the
Unitholder of record as of the First Settlement Date. The second element of
accrued interest arises because the estimated net interest on the Units in the
Trust Fund is accounted for daily on an accrual basis (herein referred to as
"Daily Accrued Interest"). Because of this, the Units always have an amount of
interest earned but not yet paid or reserved for payment. For this reason, the
Public Offering Price of Units will include the proportionate share of Daily
Accrued Interest to the date of settlement.
If a Unitholder sells or redeems all or a portion of his Units or if the Bonds
are sold or otherwise removed or if the Trust Fund is liquidated, he will
receive at that time his proportionate share of the Purchased Interest and
Daily Accrued Interest computed to the settlement date in the case of sale or
liquidation and to the date of tender in the case of redemption in the Trust
Fund.
COMPARISON OF PUBLIC OFFERING PRICE AND REDEMPTION PRICE. While the initial
Public Offering Price of Units will be determined on the basis of the current
offering prices of the Municipal Bonds in each Trust Fund, the redemption
price per Unit (as well as the secondary market price per Unit) at which Units
may be redeemed (see "Redemption") will be determined on the basis of the
current bid prices of such Bonds. As of the opening of business on the Date of
Deposit, the Public Offering Prices per Unit (based on the offering prices of
the Municipal Bonds in each Trust Fund and including the sales charge)
exceeded the redemption price at which Units could have been redeemed (based
upon the current bid prices of the Municipal Bonds in the Trust Fund) by the
amount shown under "Essential Information." In the past, bid prices on
municipal bonds similar to those in the Trust Funds have been lower than the
offering prices thereof by as much as 3% or more of principal amount in the
case of inactively traded municipal bonds or as little as 1/2 of 1% in the
case of actively traded municipal bonds but the difference between such
offering and bid prices may be expected to average 1% to 2% of principal
amount. For this reason, among others (including fluctuations in the market
prices of such Bonds and the fact that the Public Offering Prices include a
sales charge), the amount realized by a Unitholder upon any redemption of
Units may be less than the price paid for such Units.
PUBLIC DISTRIBUTION OF UNITS. The Sponsor intends to qualify the Units of the
Insured National Trust for sale in all states and Units of the Insured State
Trust for sale only in the State for which such Trust Fund is named. Units
will be sold through the Underwriters, through dealers who are members of the
National Association of
A-16
<PAGE>
Securities Dealers, Inc. and through others. Sales may be made to or through
dealers at prices which represent discounts from the Public Offering Price as
set forth below. Certain commercial banks are making Units of the Trust Funds
available to their customers on an agency basis. A portion of the sales charge
paid by their customers is retained by or remitted to the banks in the amounts
shown in the table below. Under the Glass-Steagall Act, banks are prohibited
from underwriting Trust Fund Units; however, the Glass-Steagall Act does
permit certain agency transactions and the banking regulators have indicated
that these particular agency transactions are permitted under such Act. In
addition, state securities laws on this issue may differ from the
interpretations of Federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law. The
Sponsor reserves the right to change the discounts set forth below from time
to time. In addition to such discounts, the Sponsor may, from time to time,
pay or allow an additional discount, in the form of cash or other
compensation, to dealers employing registered representatives who sell, during
a specified time period, a minimum dollar amount of Units of the Trust and
other unit investment trusts underwritten by the Sponsor. The difference
between the discount and the sales charge will be retained by the Sponsor and
the Underwriters.
<TABLE>
<CAPTION>
PRIMARY
-------------------------------------------------------------------------
WEIGHTED AVERAGE YEARS TO MATURITY
0 TO 7.49 7.5 TO 14.99 15 OR MORE
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NUMBER OF UNITS DISCOUNT PER UNIT
-------------------------------------------------------------------------
1 to 9,999 Units.................. $0.20 $0.26 $0.30
10,000 to 24,999 Units............ $0.19 $0.25 $0.28
25,000 to 49,999 Units............ $0.18 $0.23 $0.26
50,000 to 99,999 Units............ $0.17 $0.22 $0.24
100,000 or more Units............. $0.10 $0.11 $0.12
</TABLE>
<TABLE>
<CAPTION>
SECONDARY
-------------------------------------
YEARS TO MATURITY*
4 TO 7.99 8 TO 14.99 15 OR MORE
-------------------------------------
AMOUNT OF INVESTMENT DISCOUNT PER UNIT
(% OF PUBLIC OFFERING PRICE)
-------------------------------------
<S> <C> <C> <C> <C>
$1,000 to $99,999............................ 2.00 % 3.00 % 4.00 %
$100,000 to $499,999......................... 1.75 2.75 3.50
$500,000 to $999,999......................... 1.50 2.50 3.00
$1,000,000 or more........................... 1.25 2.25 2.50
</TABLE>
- ---------------------------
* If the dollar weighted average maturity of a Trust Fund is from 1 to
3.99 years the concession or agency commission is 1.00% of the Public
Offering Price.
The Underwriters reserve the right to reject, in whole or in part, any order
for the purchase of Units.
A-17
<PAGE>
PROFITS OF SPONSOR AND UNDERWRITERS. As set forth under "Underwriting," the
Underwriters of each Trust Fund will receive gross sales charges equal to the
percentage of the Public Offering Price of the Units of such Trust Fund stated
under "Public Offering Price" and the Sponsor will receive a fixed portion of
such sales charges. In addition, the Underwriters and the Sponsor may realize
a profit (or the Sponsor may realize a loss) resulting from the difference
between the purchase prices of the Municipal Bonds to the Sponsor and the cost
of such Bonds to the Trust Funds, which is based on the offering side
evaluation of the Municipal Bonds on the Date of Deposit. See "The Trust
Funds--Portfolios" and "Underwriting." The Underwriters may also realize
profits or losses with respect to Municipal Bonds deposited in the Trust
Funds, which were acquired from underwriting syndicates of which any of the
Underwriters were members. An underwriter or underwriting syndicate purchases
bonds from the issuer on a negotiated or competitive bid basis, as principal,
with the motive of marketing such bonds to investors at a profit. The
Underwriters of a Trust Fund and the Sponsor may realize additional profits or
losses during the initial offering period on unsold Units as a result of
changes in the daily evaluation of the Municipal Bonds in the Trust Funds.
MARKET FOR UNITS
After the initial offering period, while not obligated to do so, the Sponsor
intends to, and certain of the Underwriters may, subject to change at any
time, maintain a market for Units of the Trust Funds offered hereby and to
continuously offer to purchase said Units at prices, determined by the
Evaluator, based on the aggregate bid prices of the underlying Municipal Bonds
in such Trust Funds, together with Purchased Interest and Daily Accrued
Interest to the expected dates of settlement. To the extent that a market is
maintained during the initial offering period, the prices at which Units will
be repurchased will be based upon the aggregate offering side evaluation of
the Municipal Bonds in the Trust Funds. The aggregate bid prices of the
underlying Municipal Bonds in each Trust Fund are expected to be less than the
related aggregate offering prices (which is the evaluation method used during
the initial public offering period). Accordingly, Unitholders who wish to
dispose of their Units should inquire of their bank or broker as to current
market prices in order to determine whether there is in existence any price in
excess of the Redemption Price and, if so, the amount thereof.
The offering price of any Units resold by the Sponsor or Underwriters will be
in accord with that described in the currently effective Prospectus describing
such Units. Any profit or loss resulting from the resale of such Units will
belong to the Sponsor and/or the Underwriters. The Sponsor and/or the
Underwriters may suspend or discontinue purchases of Units of any Trust Fund
if the supply of Units exceeds demand, or for other business reasons.
REDEMPTION
A Unitholder who does not dispose of Units in the secondary market described
above may cause Units to be redeemed by the Trustee by making a written
request to the Trustee, Investors Fiduciary Trust Company, P.O. Box 419430,
Kansas City, Missouri, 64173-0216 and, in the case of Units evidenced by a
certificate, by tendering such certificate to the Trustee, properly endorsed
or accompanied by a written instrument or instruments of transfer in form
satisfactory to the Trustee. Unitholders must sign the request, and such
certificate or transfer instrument, exactly as their names appear on the
records of the Trustee and on any certificate representing the Units to be
redeemed. If the amount of the redemption is $25,000 or less and the proceeds
are payable to the Unitholder(s) of record at the address of record, no
signature guarantee is necessary for redemptions by individual account owners
(including joint owners). Additional documentation may be requested, and a
signature guarantee is always required, from corporations, executors,
administrators, trustees, guardians or associations. The signatures must be
guaranteed by a participant in the
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Securities Transfer Agents Medallion Program ("STAMP") or such other guarantee
program in addition to, or in substitution for, STAMP, as may be accepted by
the Trustee. A certificate should only be sent by registered or certified mail
for the protection of the Unitholder. Since tender of the certificate is
required for redemption when one has been issued, Units represented by a
certificate cannot be redeemed until the cetificate representing such Units
has been received by the purchasers.
Redemption shall be made by the Trustee on the seventh calendar day following
the day on which a tender for redemption is received, or if the seventh
calendar day is not a business day, on the first business day prior thereto
(the "Redemption Date") by payment of cash equivalent to the Redemption Price
for such Trust Fund, determined as set forth below under "Computation of
Redemption Price," as of the evaluation time stated under "Essential
Information," next following such tender, multiplied by the number of Units
being redeemed. Any Units redeemed shall be cancelled and any undivided
fractional interest in the Trust Fund extinguished. The price received upon
redemption might be more or less than the amount paid by the Unitholder
depending on the value of the Municipal Bonds in the Trust Fund at the time of
redemption.
Under regulations issued by the Internal Revenue Service, the Trustee is
required to withhold a certain percentage of the principal amount of a Unit
redemption if the Trustee has not been furnished the redeeming Unitholder's
tax identification number in the manner required by such regulations. Any
amount so withheld is transmitted to the Internal Revenue Service and may be
recovered by the Unitholder only when filing a tax return. Under normal
circumstances the Trustee obtains the Unitholder's tax identification number
from the selling broker. However, any time a Unitholder elects to tender Units
for redemption, such Unitholder should make sure that the Trustee has been
provided a certified tax identification number in order to avoid this possible
"back-up withholding." In the event the Trustee has not been previously
provided such number, one must be provided at the time redemption is
requested.
Any amounts paid on redemption representing interest shall be withdrawn from
the Interest Account for such Trust Fund to the extent that funds are
available for such purpose. All other amounts paid on redemption shall be
withdrawn from the Principal Account for such Trust Fund. The Trustee is
empowered to sell Municipal Bonds for a Trust Fund in order to make funds
available for the redemption of Units of such Trust Fund. Such sale may be
required when Municipal Bonds would not otherwise be sold and might result in
lower prices than might otherwise be realized. To the extent Municipal Bonds
are sold, the size and diversity of the Trust Fund will be reduced.
The Trustee is irrevocably authorized in its discretion, if an Underwriter
does not elect to purchase any Unit tendered for redemption, in lieu of
redeeming such Units, to sell such Units in the over-the-counter market for
the account of tendering Unitholders at prices which will return to the
Unitholders amounts in cash, net after brokerage commissions, transfer taxes
and other charges, equal to or in excess of the Redemption Price for such
Units. In the event of any such sale, the Trustee shall pay the net proceeds
thereof to the Unitholders on the day they would otherwise be entitled to
receive payment of the Redemption Price.
The right of redemption may be suspended and payment postponed (1) for any
period during which the New York Stock Exchange is closed, other than
customary weekend and holiday closings, or during which (as determined by the
Securities and Exchange Commission) trading on the New York Stock Exchange is
restricted; (2) for any period during which an emergency exists as a result of
which disposal by the Trustee of Municipal Bonds is not reasonably practicable
or it is not reasonably practicable to fairly determine the value of the
underlying Municipal Bonds in accordance with the Trust Agreements; or (3) for
such other period as the Securities and Exchange Commission may by order
permit. The Trustee is not liable to any person in any way for any loss or
damage which may result from any such suspension or postponement.
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COMPUTATION OF REDEMPTION PRICE. The Redemption Price for Units of each Trust
Fund is computed by the Evaluator as of the evaluation time stated under
"Essential Information" next occurring after the tendering of a Unit for
redemption and on any other business day desired by it, by:
A. adding: (1) the cash on hand in the Trust Fund other than cash deposited in
the Trust Fund to purchase Municipal Bonds not applied to the purchase of such
Bonds; (2) the aggregate value of each issue of the Municipal Bonds (including
"when issued" contracts, if any) held in the Trust Fund as determined by the
Evaluator on the basis of bid prices therefor; and (3) interest accrued and
unpaid on the Municipal Bonds in the Trust Fund as of the date of computation;
B. deducting therefrom (1) amounts representing any applicable taxes or
governmental charges payable out of the Trust Fund and for which no deductions
have been previously made for the purpose of additions to the Reserve Account
described under "Expenses of the Trust"; (2) an amount representing estimated
accrued expenses of the Trust Fund, including but not limited to fees and
expenses of the Trustee (including legal and auditing fees and any insurance
costs), the Evaluator, the Sponsor and bond counsel, if any; (3) cash held for
distribution to Unitholders of record as of the business day prior to the
evaluation being made; and (4) other liabilities incurred by the Trust Fund;
and
C. finally dividing the results of such computation by the number of Units of
the Trust Fund outstanding as of the date thereof.
UNITHOLDERS
OWNERSHIP OF UNITS. Ownership of Units of any Trust Fund will not be evidenced
by certificates unless a Unitholder, the Unitholder's registered broker/dealer
or the clearing agent for such broker/dealer makes a written request to the
Trustee. Certificates, if issued, will be so noted on the confirmation
statement sent to the Underwriter and broker. Non-receipt of such
certificate(s) must be reported to the Trustee within one year; otherwise, a
2% surety bond fee will be required for replacement.
Units are transferable by making a written request to the Trustee and, in the
case of Units evidenced by a certificate, by presenting and surrendering such
certificate to the Trustee properly endorsed or accompanied by a written
instrument or instruments of transfer which should be sent registered or
certified mail for the protection of the Unitholder. Unitholders must sign
such written request, and such certificate or transfer instrument, exactly as
their names appear on the records of the Trustee and on any certificate
representing the Units to be transferred. Such signatures must be guaranteed
by a participant in the Securities Transfer Agents Medallion Program ("STAMP")
or such other signature guarantee program in addition to, or in substitution
for, STAMP, as may be accepted by the Trustee.
Units may be purchased and certificates, if requested, will be issued in
denominations of one Unit subject to the Trust's minimum investment
requirement of 1 Unit or any whole Unit multiple thereof subject to any
minimum requirement established by the Sponsor from time to time. Any
certificate issued will be numbered serially for identification, issued in
fully registered form and will be transferable only on the books of the
Trustee. The Trustee may require a Unitholder to pay a reasonable fee, to be
determined in the sole discretion of the Trustee, for each certificate
re-issued or transferred and to pay any governmental charge that may be
imposed in connection with each such transfer or interchange. The Trustee at
the present time does not intend to charge for the normal transfer or
interchange of certificates. Destroyed, stolen, mutilated or lost certificates
will be replaced upon delivery to the Trustee of satisfactory indemnity
(generally amounting to 3% of the market value of the Units), affidavit of
loss, evidence of ownership and payment of expenses incurred.
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DISTRIBUTIONS TO UNITHOLDERS. Interest Distributions: Interest received by
each Trust Fund, including any portion of the proceeds from a disposition of
Municipal Bonds which represents accrued interest, is credited by the Trustee
to the Interest Account for such Trust Fund. All other receipts are credited
by the Trustee to a separate Principal Account for the Trust Fund. The Trustee
normally has no cash for distribution to Unitholders until it receives
interest payments on the Bonds in the Trust Fund. Since municipal interest
usually is paid semi-annually, during the initial months of the Trust, the
Interest Account of each Trust Fund, consisting of accrued but uncollected
interest and collected interest (cash), will be predominantly the uncollected
accrued interest that is not available for distribution. On the dates set
forth under "Essential Information" for each Trust, the Trustee will commence
distributions, in part from funds advanced by the Trustee.
Thereafter, assuming the Trust Fund retains its original size and composition,
after deduction of the fees and expenses of the Trustee, the Sponsor and
Evaluator and reimbursements (without interest) to the Trustee for any amounts
advanced to a Trust Fund, the Trustee will normally distribute on each
Interest Distribution Date (the fifteenth of the month) or shortly thereafter
to Unitholders of record of such Trust Fund on the preceding Record Date
(which is the first day of each month). Unitholders of the Trust Funds will
receive an amount substantially equal to one-twelfth of such holders' pro rata
share of the estimated net annual interest income to the Interest Account of
such Trust Fund. However, interest earned at any point in time will be greater
than the amount actually received by the Trustee and distributed to the
Unitholders. Therefore, there will always remain an item of accrued interest
that is added to the daily value of the Units. If Unitholders of a Trust Fund
sell or redeem all or a portion of their Units, they will be paid their
proportionate share of the accrued interest of such Trust Fund to, but not
including, the fifth business day after the date of a sale or to the date of
tender in the case of a redemption.
In order to equalize distributions and keep the undistributed interest income
of the Trust Funds at a low level, all Unitholders of record in such Trust
Fund on the first Record Date will receive an interest distribution on the
first Interest Distribution Date. Because the period of time between the first
Interest Distribution Date and the regular distribution dates may not be a
full period, the first regular distributions may be partial distributions.
Persons who purchase Units between a Record Date and a Distribution Date will
receive their first distribution on the second Distribution Date following
their purchase of Units. Since interest on Municipal Bonds in the Trust Funds
is payable at varying intervals, usually in semi-annual installments, and
distributions of income are made to Unitholders at different intervals from
receipt of interest, the interest accruing to a Trust Fund may not be equal to
the amount of money received and available for distribution from the Interest
Account. Therefore, on each Distribution Date the amount of interest actually
deposited in the Interest Account of a Trust Fund and available for
distribution may be slightly more or less than the interest distribution made.
In order to eliminate fluctuations in interest distributions resulting from
such variances, the Trustee is authorized by the Trust Agreements to advance
such amounts as may be necessary to provide interest distributions of
approximately equal amounts. The Trustee will be reimbursed, without interest,
for any such advances from funds available in the Interest Account for such
Trust Fund.
Principal Distributions. The Trustee will distribute on each Distribution Date
or shortly thereafter, to each Unitholder of record of the Trust Fund on the
preceding Record Date, an amount substantially equal to such holder's pro rata
share of the cash balance, if any, in the Principal Account of such Trust Fund
computed as of the close of business on the preceding Record Date. However, no
distribution will be required if the balance in the Principal Account is less
than $.001 per Unit.
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STATEMENTS TO UNITHOLDERS. With each distribution, the Trustee will furnish or
cause to be furnished to each Unitholder a statement of the amount of interest
and the amount of other receipts, if any, which are being distributed,
expressed in each case as a dollar amount per Unit.
The accounts of each Trust Fund are required to be audited annually, at the
Trust Fund's expense, by independent auditors designated by the Sponsor,
unless the Trustee determines that such an audit would not be in the best
interest of the Unitholders of such Trust Fund. The accountants' report will
be furnished by the Trustee to any Unitholder of such Trust Fund upon written
request. Within a reasonable period of time after the end of each calendar
year, the Trustee shall furnish to each person who at any time during the
calendar year was a Unitholder of a Trust Fund a statement, covering the
calendar year, setting forth for the applicable Trust Fund:
A. As to the Interest Account:
1. The amount of interest received on the Municipal Bonds and the percentage
of such amount by states and territories in which the issuers of such Bonds
are located;
2. The amount paid from the Interest Account representing accrued interest of
any Units redeemed;
3. The deductions from the Interest Account for applicable taxes, if any, fees
and expenses (including auditing fees) of the Trustee, the Evaluator, and, if
any, of bond counsel;
4. Any amounts credited by the Trustee to the Reserve Account described under
"Expenses of the Trust";
5. The net amount remaining after such payments and deductions, expressed both
as a total dollar amount and a dollar amount per Unit outstanding on the last
business day of such calendar year; and
B. As to the Principal Account:
1. The dates of the maturity, liquidation or redemption of any of the
Municipal Bonds and the net proceeds received therefrom excluding any portion
credited to the Interest Account;
2. The amount paid from the Principal Account representing the principal of
any Units redeemed;
3. The deductions from the Principal Account for payment of applicable taxes,
if any, fees and expenses (including auditing fees) of the Trustee, the
Evaluator, and, if any, of bond counsel;
4. The amount of when-issued interest treated as a return of capital, if any;
5. Any amounts credited by the Trustee to the Reserve Account described under
"Expenses of the Trust";
6. The net amount remaining after distributions of principal and deductions,
expressed both as a dollar amount and as a dollar amount per Unit outstanding
on the last business day of the calendar year; and
C. The following information:
1. A list of the Municipal Bonds as of the last business day of such calendar
year;
2. The number of Units outstanding on the last business day of such calendar
year;
3. The Redemption Price based on the last evaluation made during such calendar
year;
4. The amount actually distributed during such calendar year from the Interest
and Principal Accounts separately stated, expressed both as total dollar
amounts and as dollar amounts per Unit outstanding on the Record Dates for
each such distribution.
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RIGHTS OF UNITHOLDERS. A Unitholder may at any time tender Units to the
Trustee for redemption. The death or incapacity of any Unitholder will not
operate to terminate a Trust or any Trust Fund nor entitle legal
representatives or heirs to claim an accounting or to bring any action or
proceeding in any court for partition or winding up of a Trust or any Trust
Fund.
No Unitholder shall have the right to control the operation and management of
any Trust Fund in any manner, except to vote with respect to the amendment of
the Trust Agreements or termination of any Trust Fund.
INVESTMENT SUPERVISION
The Sponsor may not alter the portfolios of the Trust Funds by the purchase,
sale or substitution of Municipal Bonds, except in the special circumstances
noted below and as indicated earlier under "Portfolios" regarding the
substitution of Replacement Bonds for any Failed Bonds. Thus, with the
exception of the redemption or maturity of Municipal Bonds in accordance with
their terms, the assets of the Trust Funds will remain unchanged under normal
circumstances.
The Sponsor may direct the Trustee to dispose of Municipal Bonds the value of
which has been affected by certain adverse events including institution of
certain legal proceedings or decline in price or the occurrence of other
market factors, including advance refunding, so that in the opinion of the
Sponsor the retention of such Bonds in a Trust Fund would be detrimental to
the interest of the Unitholders. The proceeds from any such sales, exclusive
of any portion which represents accrued interest, will be credited to the
Principal Account of such Trust Fund for distribution to the Unitholders.
The Sponsor is required to instruct the Trustee to reject any offer made by an
issuer of Muncipal Bonds to issue new obligations in exchange or substitution
for any of such Bonds pursuant to a refunding financing plan, except that the
Sponsor may instruct the Trustee to accept or reject such an offer or to take
any other action with respect thereto as the Sponsor may deem proper if (1)
the issuer is in default with respect to such Bonds or (2) in the written
opinion of the Sponsor the issuer will probably default with respect to such
Bonds in the reasonably forseeable future. Any obligation so received in
exchange or substitution will be held by the Trustee subject to the terms and
conditions of the Trust Agreement to the same extent as Bonds originally
deposited thereunder. Within five days after the deposit of obligations in
exchange or substitution for underlying Bonds, the Trustee is required to give
notice thereof to each Unitholder, identifying the Bonds eliminated and the
Bonds substituted therefor.
The Trustee may sell Municipal Bonds, designated by the Sponsor, from a Trust
Fund for the purpose of redeeming Units of such Trust Fund tendered for
redemption and the payment of expenses.
ADMINISTRATION OF THE TRUSTS
THE TRUSTEE. The Trustee, Investors Fiduciary Trust Company, is a trust
company specializing in investment related services, organized and existing
under the laws of Missouri, having its trust office at 127 West 10th Street,
Kansas City, Missouri 64105. The Trustee is subject to supervision and
examination by the Division of Finance of the State of Missouri and the
Federal Deposit Insurance Corporation. Investors Fiduciary Trust Company is
jointly owned by DST Systems, Inc. and Kemper Financial Services, Inc., an
affiliate of the Sponsor.
The Trustee, whose duties are ministerial in nature, has not participated in
selecting the portfolio of any Trust Fund. For information relating to the
responsibilities of the Trustee under the Trust Agreements, reference is made
to the material set forth under "Unitholders."
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In accordance with the Trust Agreements, the Trustee shall keep records of all
transactions at its office. Such records shall include the name and address
of, and the number of Units held by, every Unitholder of each Trust Fund. Such
books and records shall be open to inspection by any Unitholder of such Trust
Fund at all reasonable times during usual business hours. The Trustee shall
make such annual or other reports as may from time to time be required under
any applicable state or Federal statute, rule or regulation. The Trustee shall
keep a certified copy or duplicate original of the Trust Agreements on file in
its office available for inspection at all reasonable times during usual
business hours by any Unitholder, together with a current list of the
Municipal Bonds held in each Trust Fund. Pursuant to the Trust Agreements, the
Trustee may employ one or more agents for the purpose of custody and
safeguarding of Municipal Bonds comprising the Trust Funds.
Under the Trust Agreements, the Trustee or any successor trustee may resign
and be discharged of its duties created by the Trust Agreements by executing
an instrument in writing and filing the same with the Sponsor.
The Trustee or successor trustee must mail a copy of the notice of resignation
to all Unitholders then of record, not less than 60 days before the date
specified in such notice when such resignation is to take effect. The Sponsor
upon receiving notice of such resignation is obligated to appoint a successor
trustee promptly. If, upon such resignation, no successor trustee has been
appointed and has accepted the appointment within 30 days after notification,
the retiring Trustee may apply to a court of competent jurisdiction for the
appointment of a successor. In case the Trustee becomes incapable of acting or
is adjudged a bankrupt or is taken over by public authorities, the Sponsor may
remove the Trustee and appoint a successor trustee as provided in the Trust
Agreements. Notice of such removal and appointment shall be mailed to each
Unitholder by the Sponsor. Upon execution of a written acceptance of such
appointment by such successor trustee, all the rights, powers, duties and
obligations of the original Trustee shall vest in the successor. The Trustee
shall be a corporation organized under the laws of the United States, or any
state thereof, which is authorized under such laws to exercise trust powers.
The Trustee shall have at all times an aggregate capital, surplus and
undivided profits of not less than $5,000,000.
THE EVALUATOR. Kemper Unit Investment Trusts, a service of Kemper Securities,
Inc., the Sponsor, also serves as Evaluator. The Evaluator may resign or be
removed by the Trustee in which event the Trustee is to use its best efforts
to appoint a satisfactory successor. Such resignation or removal shall become
effective upon acceptance of appointment by the successor evaluator. If upon
resignation of the Evaluator no successor has accepted appointment within 30
days after notice of resignation, the Evaluator may apply to a court of
competent jurisdiction for the appointment of a successor. Notice of such
resignation or removal and appointment shall be mailed by the Trustee to each
Unitholder. At the present time, pursuant to a contract with the Evaluator,
Muller Data Corporation, a non-affiliated firm regularly engaged in the
business of evaluating, quoting or appraising comparable securities, provides,
for both the initial offering period and secondary market transactions,
portfolio evaluations of the Bonds in the Trust Funds which are then reviewed
by the Evaluator. In the event the Sponsor is unable to obtain current
evaluations from Muller Data Corporation, it may make its own evaluations or
it may utilize the services of any other non-affiliated evaluator or
evaluators it deems appropriate.
AMENDMENT AND TERMINATION. The Trust Agreements may be amended by the Trustee
and the Sponsor without the consent of any of the Unitholders: (1) to cure any
ambiguity or to correct or supplement any provision which may be defective or
inconsistent; (2) to change any provision thereof as may be required by the
Securities and Exchange Commission or any successor governmental agency; or
(3) to make such provisions as shall not adversely affect the interests of the
Unitholders. The Trust Agreements with respect to the Trust Funds may also be
amended in any respect by the Sponsor and the Trustee, or any of the
provisions thereof may be waived, with the consent of the holders of Units
representing 66 2/3% of the Units then
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outstanding of such Trust Fund, provided that no such amendment or waiver will
reduce the interest of any Unitholder thereof without the consent of such
Unitholder or reduce the percentage of Units required to consent to any such
amendment or waiver without the consent of all Unitholders of such Trust Fund.
In no event shall any Trust Agreement be amended to increase the number of
Units of a Trust Fund issuable thereunder or to permit, except in accordance
with the provisions of such Trust Agreement, the acquisition of any Municipal
Bonds in addition to or in substitution for those initially deposited in a
Trust Fund. The Trustee shall promptly notify Unitholders of the substance of
any such amendment.
The Trust Agreements provide that the Trust Funds shall terminate upon the
maturity, redemption or other disposition of the last of the Municipal Bonds
held in a Trust Fund. If the value of a Trust Fund shall be less than the
applicable minimum value stated under "Essential Information" (20% of the
original principal amount of a Trust Fund), the Trustee may, in its
discretion, and shall, when so directed by the Sponsor, terminate the Trust
Fund. A Trust Fund may be terminated at any time by the holders of Units
representing 66 2/3% of the Units thereof then outstanding. In the event of
termination of a Trust Fund, written notice thereof will be sent by the
Trustee to all Unitholders of such Trust Fund. Within a reasonable period
after termination, the Trustee will sell any Municipal Bonds remaining in such
Trust Fund and, after paying all expenses and charges incurred by the Trust
Fund, will distribute to Unitholders thereof (upon surrender for cancellation
of certificates for Units, if issued) their pro rata share of the balances
remaining in the Interest and Principal Accounts of such Trust Fund.
LIMITATIONS ON LIABILITY. The Sponsor: The Sponsor is liable for the
performance of its obligations arising from its responsibilities under the
Trust Agreements, but will be under no liability to the Unitholders for taking
any action or refraining from any action in good faith pursuant to the Trust
Agreements or for errors in judgment, except in cases of its own gross
negligence, bad faith or willful misconduct. The Sponsor shall not be liable
or responsible in any way for depreciation or loss incurred by reason of the
sale of any Municipal Bonds.
The Trustee: The Trust Agreements provide that the Trustee shall be under no
liability for any action taken in good faith in reliance upon prima facie
properly executed documents or for the disposition of monies, Municipal Bonds
or certificates except by reason of its own gross negligence, bad faith or
willful misconduct, nor shall the Trustee be liable or responsible in any way
for depreciation or loss incurred by reason of the sale by the Trustee of any
Municipal Bonds. In the event that the Sponsor shall fail to act, the Trustee
may act and shall not be liable for any such action taken by it in good faith.
The Trustee shall not be personally liable for any taxes or other governmental
charges imposed upon or in respect of the Municipal Bonds or upon the interest
thereon. In addition, the Trust Agreements contain other customary provisions
limiting the liability of the Trustee.
The Evaluator: The Trustee and Unitholders may rely on any evaluation
furnished by the Evaluator and shall have no responsibility for the accuracy
thereof. The Trust Agreements provide that the determinations made by the
Evaluator shall be made in good faith upon the basis of the best information
available to it, provided, however, that the Evaluator shall be under no
liability to the Trustee or Unitholders for errors in judgment, but shall be
liable only for its gross negligence, lack of good faith or willful
misconduct.
EXPENSES OF THE TRUSTS
The Sponsor will charge the Trust Funds a surveillance fee for services
performed for the Trust Funds in an amount not to exceed that amount set forth
in "Essential Information" but in no event will such compensation, when
combined with all compensation received from other unit investment trusts for
which the Sponsor both acts as sponsor and provides portfolio surveillance,
exceed the aggregate cost to the
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Sponsor for providing such services. Such fee shall be based on the total
number of Units of the Trust Fund outstanding as of the January Record Date
for any annual period. The Sponsor will receive a portion of the sales
commissions paid in connection with the purchase of Units and will share in
profits, if any, related to the deposit of Municipal Bonds in the Trust Funds
(see "Underwriting"). The Sponsor and other Underwriters have borne all the
expenses of creating and establishing the Trust including the cost of the
initial preparation, printing and execution of the Prospectus, Trust
Agreements and certificates, legal and accounting expenses, advertising and
selling expenses, payment of closing fees, the expenses of the Trustee,
evaluation fees relating to the deposit and other out-of-pocket expenses.
The Trustee receives for its services fees set forth under "Essential
Information." The Trustee fee which is calculated monthly is based on the
largest aggregate principal amount of Municipal Bonds in the Trust Fund at any
time during the period. Funds that are available for future distributions,
redemptions and payment of expenses are held in accounts which are
non-interest bearing to Unitholders and are available for use by the Trustee
pursuant to normal trust procedures; however, the Trustee is also authorized
by the Trust Agreements to make from time to time certain non-interest bearing
advances to the Trust Funds. During the first year the Trustee has agreed to
lower its fees and absorb expenses by the amount set forth under "Essential
Information." The Trustee's fee will not be increased in future years in order
to make up this reduction in the Trustee's fee. The Trustee's fee is payable
on or before each Distribution Date.
For evaluation of Municipal Bonds in each Trust Fund, the Evaluator shall
receive a fee, payable monthly, calculated on the basis of that annual rate
set forth under "Essential Information," based upon the largest aggregate
principal amount of Municipal Bonds in such Trust Fund at any time during such
monthly period.
The Trustee's and Evaluator's fees are deducted first from the Interest
Account of the Trust Fund to the extent funds are available and then from the
Principal Account. Such fees may be increased without approval of Unitholders
by amounts not exceeding a proportionate increase in the Consumer Price Index
entitled "All Services Less Rent of Shelter," published by the United States
Department of Labor, or any equivalent index substituted therefor.
The following additional charges are or may be incurred by the Trust Funds:
(a) fees for the Trustee's extraordinary services; (b) expenses of the Trustee
(including legal and auditing expenses and insurance costs for Insured Trust
Funds, but not including any fees and expenses charged by any agent for
custody and safeguarding of Municipal Bonds) and of bond counsel, if any; (c)
various governmental charges; (d) expenses and costs of any action taken by
the Trustee to protect the Trust or any Trust Fund or the rights and interests
of the Unitholders; (e) indemnification of the Trustee for any loss, liability
or expense incurred by it in the administration of the Trust or any Trust Fund
not resulting from gross negligence, bad faith or willful misconduct on its
part; (f) indemnification of the Sponsor for any loss, liability or expense
incurred in acting in that capacity without gross negligence, bad faith or
willful misconduct; and (g) expenditures incurred in contacting Unitholders
upon termination of the Trust Funds. The fees and expenses set forth herein
are payable out of the appropriate Trust Fund and, when owing to the Trustee,
are secured by a lien on such Trust Fund. Fees or charges relating to the
Trust shall be allocated to each Trust Fund in the same ratio as the principal
amount of such Trust Fund bears to the total principal amount of all Trust
Funds in the Trust. Fees or charges relating solely to a particular Trust Fund
shall be charged only to such Trust Fund.
Fees and expenses of the Trust Funds shall be deducted from the Interest
Account thereof, or, to the extent funds are not available in such Account,
from the Principal Accounts. The Trustee may withdraw from the Principal
Account or the Interest Account of any Trust Fund such amounts, if any, as it
deems necessary to establish a reserve for any taxes or other governmental
charges or other extraordinary expenses payable out of the Trust Fund. Amounts
so withdrawn shall be credited to a separate account maintained for the Trust
A-26
<PAGE>
Fund known as the Reserve Account and shall not be considered a part of the
Trust Fund when determining the value of the Units until such time as the
Trustee shall return all or any part of such amounts to the appropriate
account.
THE SPONSOR
The Sponsor, Kemper Unit Investment Trusts, with an office at 77 West Wacker
Drive, 5th Floor, Chicago, Illinois 60601, (800) 621-5024, is a service of
Kemper Securities, Inc., which is a wholly-owned subsidiary of Kemper
Financial Companies, Inc. which, in turn, is a wholly-owned subsidiary of
Kemper Corporation. The Sponsor acts as underwriter of a number of other
Kemper unit investment trusts and will act as underwriter of any other unit
investment trust products developed by the Sponsor in the future. As of April
30, 1993, the total stockholder's equity of Kemper Securities, Inc. was
$426,125,017 (unaudited).
If at any time the Sponsor shall fail to perform any of its duties under the
Trust Agreements or shall become incapable of acting or shall be adjudged a
bankrupt or insolvent or shall have its affairs taken over by public
authorities, then the Trustee may (a) appoint a successor sponsor at rates of
compensation deemed by the Trustee to be reasonable and not exceeding such
reasonable amounts as may be prescribed by the Securities and Exchange
Commission, or (b) terminate the Trust Agreements and liquidate the Trust
Funds as provided therein, or (c) continue to act as Trustee without
terminating the Trust Agreements.
The foregoing financial information with regard to the Sponsor relates to the
Sponsor only and not to these Trust Funds. Such information is included in
this Prospectus only for the purpose of informing investors as to the
financial responsibility of the Sponsor and its ability to carry out its
contractual obligations with respect to the Trust Funds. More comprehensive
financial information can be obtained upon request from the Sponsor.
LEGAL OPINIONS
The legality of the Units offered hereby and certain matters relating to
Federal tax law have been passed upon by Chapman and Cutler, 111 West Monroe
Street, Chicago, Illinois 60603, as counsel for the Sponsor. Special counsel
for the Trust Funds for respective state tax matters are named in the
appropriate state tax sections of "Special Considerations and State Tax
Status."
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The statements of condition and the related municipal bond portfolios at the
Date of Deposit included in this Prospectus have been audited by Grant
Thornton, independent certified public accountants, as set forth in their
report in the Prospectus, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing.
A-27
<PAGE>
<TABLE>
<CAPTION>
CONTENTS PAGE
<S> <C>
SUMMARY......................................... 2
ESSENTIAL INFORMATION........................... 3
THE TRUST FUNDS................................. 5
General....................................... 5
Series Information............................ 6
Taxable Equivalent Estimated Current Return
Tables...................................... 7
Portfolios.................................... 8
Notes to Portfolios........................... 10
UNDERWRITING.................................... 11
REPORT OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS................................... 13
STATEMENTS OF CONDITION......................... 14
SPECIAL CONSIDERATIONS AND STATE TAX
STATUS........................................ 15
FEDERAL TAX STATUS.............................. 19
ESTIMATED CASHFLOWS TO UNITHOLDERS.............. 22
DESCRIPTION OF MUNICIPAL BOND RATINGS........... A-1
PORTFOLIOS...................................... A-3
General Trust Information..................... A-5
INSURANCE ON THE PORTFOLIOS OF THE INSURED TRUST
FUNDS......................................... A-9
DISTRIBUTION REINVESTMENT....................... A-13
INTEREST, ESTIMATED LONG-TERM RETURN AND
ESTIMATED CURRENT RETURN...................... A-13
PUBLIC OFFERING OF UNITS........................ A-14
Public Offering Price......................... A-14
Purchased and Daily Accrued Interest.......... A-16
Comparison of Public Offering Price and
Redemption Price............................ A-16
Public Distribution of Units.................. A-16
Profits of Sponsor and Underwriters........... A-18
MARKET FOR UNITS................................ A-18
REDEMPTION...................................... A-18
Computation of Redemption Price............... A-20
UNITHOLDERS..................................... A-20
Ownership of Units............................ A-20
Distributions to Unitholders.................. A-21
Statements to Unitholders..................... A-22
Rights of Unitholders......................... A-23
INVESTMENT SUPERVISION.......................... A-23
ADMINISTRATION OF THE TRUSTS.................... A-23
The Trustee................................... A-23
The Evaluator................................. A-24
Amendment and Termination..................... A-24
Limitations on Liability...................... A-25
EXPENSES OF THE TRUSTS.......................... A-25
THE SPONSOR..................................... A-27
LEGAL OPINIONS.................................. A-27
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS........ A-27
</TABLE>
THIS PROSPECTUS DOES NOT CONTAIN ALL OF THE INFORMATION SET FORTH IN THE
REGISTRATION STATEMENT AND EXHIBITS RELATING THERETO, FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION, WASHINGTON, D.C. UNDER THE SECURITIES
ACT OF 1933 AND THE INVESTMENT COMPANY ACT OF 1940, AND TO WHICH REFERENCE
IS MADE.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND ANY INFORMATION OR
REPRESENTATION NOT CONTAINED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE TRUST, THE TRUSTEE, OR THE SPONSOR. THE TRUST IS
REGISTERED AS A UNIT INVESTMENT TRUST UNDER THE INVESTMENT COMPANY ACT OF
1940. SUCH REGISTRATION DOES NOT IMPLY THAT THE TRUST OR THE UNITS HAVE
BEEN GUARANTEED, SPONSORED, RECOMMENDED OR APPROVED BY THE UNITED STATES
OR ANY STATE OR ANY AGENCY OR OFFICER THEREOF.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, SECURITIES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT
LAWFUL TO MAKE SUCH OFFER IN SUCH STATE.
KEMPER
DEFINED
FUNDS
TAX EXEMPT
PROSPECTUS
INSURED NATIONAL SERIES 9
INSURED OHIO SERIES 5
MARCH 9, 1994
KEMPER UNIT INVESTMENT TRUSTS
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement on Form S-6 comprises the following papers and
documents:
The facing sheet of Form S-6
The Cross-Reference Sheet
The Prospectus
The signatures
The following exhibits:
1.1 Form of Trust Indenture and Agreement for Kemper Defined
Funds Series 18 (to be filed by amendment).
1.1.1 Standard Terms and Conditions of Trust for Kemper Defined
Funds Series 18. Reference is made to Exhibit 1.1.1(b) to the
Registration Statement on Form S-6, with respect to Kemper
Tax-Exempt Insured Income Trust, Series A-55, Series A-56
and Multi-State Series 15 (Registration No. 33-16876)
as filed on April 19, 1989.
1.2 Certificate of Incorporation of Kemper Securities, Inc.
Reference is made to Exhibit 1.2 to the Registration Statement
on Form S-6, with respect to Kemper Government Securities Trust
(Registration No. 33-26754) as filed on February 14, 1989
and Kemper Defined Funds Series 9 (Registration No. 33-56012
as filed on November 3, 1993.
1.3 By-laws of Kemper Securities, Inc. Reference is made to
Exhibit 3.1 to the Registration Statement on Form S-6, with
respect to Kemper Government Securities Trust (Registration
No. 33-26754) as filed on February 14, 1989 and Kemper
Defined Funds Series 9 (Registration No. 33-56012
as filed on November 3, 1993.
2.1 Form of Certificate of Ownership (pages three to nine,
inclusive, of the Standard Terms and Conditions of Trust
included as Exhibit 1.1.1).
3.1 Opinion of counsel to the Sponsor as to legality of the securities
being registered including a consent to the use of its name
under the headings "Federal Tax Status" and "Legal Opinions" in
the Prospectus and opinion of counsel as to Federal income tax
status of the securities being registered and certain Missouri tax
matters (to be filed by amendment).
4.1 Consent of Moody's Investors Service, Inc. (to be filed
by amendment).
4.2 Consent of Muller Data Corporation (to be filed by amendment).
4.3 Consent of Grant Thornton (to be filed by amendment).
S-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, Kemper Defined Funds Series 18, has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Chicago, and State of Illinois, on the 5th day of
April, 1994.
KEMPER DEFINED FUNDS SERIES 18
Registrant
By: KEMPER SECURITIES, INC.
Depositor
By: /s/ C. Perry Moore
----------------------------
C. Perry Moore
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on April 5, 1994 by the following
persons, who constitute a majority of the Board of Directors of Kemper
Securities, Inc.
Signature Title
--------- -----
James R. Boris Chairman and Chief Executive Officer
- -------------------------------
James R. Boris
Donald F. Eller Senior Executive Vice President and
- ------------------------------- Director
Donald F. Eller
Stanley R. Fallis Senior Executive Vice President, Chief
- ------------------------------- Financial Officer and Director
Stanley R. Fallis
Frank V. Geremia Senior Executive Vice President and
- ------------------------------- Director
Frank V. Geremia
David B. Mathis Director
- -------------------------------
David B. Mathis
Robert T. Jackson Director
- -------------------------------
Robert T. Jackson
Jay B. Walters Senior Executive Vice President and
- ------------------------------- Director
Jay B. Walters
S-2
<PAGE>
Charles M. Kierscht Director
- -------------------------------
Charles M. Kierscht
Arthur J. McGivern Director
- -------------------------------
Arthur J. McGivern
/s/ C. Perry Moore
-------------------------------
C. Perry Moore
C. Perry Moore signs this document pursuant to Power of Attorney
filed with the Securities and Exchange Commission with (a) Amendment No. 1 to
the Registration Statement on Form S-6 for Kemper Tax-Exempt Insured Income
Trust, Series A-70 and Multi-State Series 28 and Kemper Tax-Exempt Income Trust,
Multi-State Series 42 (Registration No. 33-35425), and (b) Amendment No. 1 to
the Registration Statement on Form S-6 for Kemper Tax-Exempt Insured Income
Trust, Series A-72 and Multi-State Series 30 (Registration No. 33-37178), and
(c) Amendment No. 1 to the Registration Statement on Form S-6 for Kemper Tax-
Exempt Insured Income Trust, Multi-State Series 51 (Registration No. 33-48398).
S-3
